Sachem Capital Corp. 10-Q

Item 1. FINANCIAL STATEMENTS SACHEM CAPITAL CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Assets ​ ​ Cash and cash equivalents ​ $ 20,332,516 ​ $ 23,713,097 Investment securities ​ ​ 35,837,202 ​ ​ 24,576,462 Mortgages receivable, net ​ 476,469,464 ​ 460,633,268 Interest and fees receivable, net ​ 6,645,909 ​ 6,309,845 Due from borrowers, net ​ 6,037,966 ​ 5,276,967 Real estate owned ​ 6,138,912 ​ 5,216,149 Investments in partnerships ​ ​ 35,322,234 ​ ​ 30,831,180 Property and equipment, net ​ ​ 4,792,472 ​ ​ 4,121,721 Other assets ​ ​ 5,420,367 ​ ​ 4,983,173 Total assets ​ $ 596,997,042 ​ $ 565,661,862 ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity ​ ​ Liabilities: ​ ​ Notes payable (net of deferred financing costs of $ 7,793,640 and $ 8,352,597 ) ​ $ 280,608,110 ​ $ 280,049,153 Repurchase facility ​ ​ 54,055,815 ​ ​ 42,533,466 Mortgage payable ​ 1,660,000 ​ 750,000 Line of credit ​ ​ 13,673,930 ​ ​ 3,587,894 Accrued dividends payable ​ ​ — ​ ​ 5,342,160 Accounts payable and accrued liabilities ​ ​ 2,007,450 ​ ​ 1,439,219 Advances from borrowers ​ ​ 11,314,622 ​ ​ 9,892,164 Deferred revenue ​ ​ 4,681,060 ​ ​ 4,360,452 Total liabilities ​ ​ 368,000,987 ​ ​ 347,954,508 ​ ​ ​ ​ ​ ​ ​ Commitments and Contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ Equity: ​ ​ Preferred shares - $ 0.001 par value; 5,000,000 shares authorized; 2,903,000 shares designated as Series A Preferred Stock; 1,909,187 and 1,903,000 shares of Series A Preferred Stock issued and outstanding at March 31, 2023 and December 31, 2022, respectively ​ 1,909 ​ 1,903 Common shares - $ 0.001 par value; 200,000,000 shares authorized; 43,756,724 and 41,093,536 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively ​ 43,757 ​ 41,094 Paid-in capital ​ 235,709,499 ​ 226,220,990 Accumulated other comprehensive loss ​ ​ ( 469,853 ) ​ ​ ( 561,490 ) Accumulated deficit ​ ( 6,289,257 ) ​ ( 7,995,143 ) Total shareholders’ equity ​ 228,996,055 ​ 217,707,354 Total liabilities and shareholders’ equity ​ $ 596,997,042 ​ $ 565,661,862 ​ ​ The accompanying notes are an integral part of these financial statements. ​ ​ 1 Table of Contents SACHEM CAPITAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 Revenue: ​ ​ ​ Interest income from loans ​ $ 10,983,326 ​ $ 8,511,375 Investment gain, net ​ ​ 274,796 ​ ​ 117,337 Income from partnership investments ​ ​ 549,723 ​ ​ 272,488 Origination and modification fees, net ​ 1,475,920 ​ 1,843,841 Fee and other income ​ 707,605 ​ 608,564 Unrealized gain (loss) on investment securities ​ ​ 716,389 ​ ​ ( 1,052,230 ) Total revenue ​ 14,707,759 ​ 10,301,375 ​ ​ ​ ​ ​ ​ ​ Operating costs and expenses: ​ ​ Interest and amortization of deferred financing costs ​ 6,872,967 ​ 3,898,389 Compensation, fees and taxes ​ 1,779,318 ​ 993,962 General and administrative expenses ​ ​ 898,115 ​ ​ 631,948 Other expenses ​ 83,722 ​ 99,272 (Gain) Loss on sale of real estate ​ ​ ( 148,100 ) ​ ​ 65,838 Allowance for credit losses ​ ​ 101,515 ​ ​ 105,000 Impairment loss ​ ​ — ​ ​ 155,500 Total operating costs and expenses ​ ​ 9,587,537 ​ ​ 5,949,909 Net income ​ 5,120,222 ​ 4,351,466 Series A Preferred Stock dividend ​ ​ ( 924,762 ) ​ ​ ( 921,766 ) Net income attributable to common shareholders ​ ​ 4,195,460 ​ ​ 3,429,700 ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss ​ ​ ​ ​ ​ ​ Unrealized gain on investment securities ​ ​ 91,637 ​ ​ 242,808 Comprehensive income ​ $ 4,287,097 ​ $ 3,672,508 Basic and diluted net income per common share outstanding: ​ ​ Basic ​ $ 0.10 ​ $ 0.10 Diluted ​ $ 0.10 ​ $ 0.10 Weighted average number of common shares outstanding: ​ ​ Basic ​ 42,792,509 ​ 34,892,883 Diluted ​ 42,792,509 ​ 34,898,666 ​ The accompanying notes are an integral part of these financial statements. ​ ​ ​ 2 Table of Contents SACHEM CAPITAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FOR THE THREE MONTHS ENDED MARCH 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common Stock ​ Paid in ​ Comprehensive ​ Accumulated ​ ​ ​ Shares Amount Shares Amount Capital Loss Deficit Totals Balance, January 1, 2023 ​ 1,903,000 ​ $ 1,903 ​ 41,093,536 ​ $ 41,094 ​ $ 226,220,990 ​ $ ( 561,490 ) ​ $ ( 7,995,143 ) ​ $ 217,707,354 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative effect of change in accounting principle - Adoption of ASU 2016-13 (Note 2) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,489,574 ) ​ ​ ( 2,489,574 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Issuance of Series A Preferred Stock, net of expenses ​ 6,187 ​ ​ 6 ​ — ​ ​ — ​ ​ 136,699 ​ ​ — ​ ​ — ​ ​ 136,705 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Issuance of common shares, net of expenses ​ ​ — ​ ​ — ​ ​ 2,479,798 ​ ​ 2,480 ​ ​ 9,178,678 ​ ​ — ​ ​ — ​ ​ 9,181,158 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock based compensation ​ ​ — ​ ​ — ​ ​ 183,390 ​ ​ 183 ​ ​ 173,132 ​ ​ — ​ ​ — ​ ​ 173,315 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain on investments ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 91,637 ​ ​ — ​ ​ 91,637 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends paid on Series A Preferred Stock ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 924,762 ) ​ ​ ( 924,762 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income for the period ended March 31, 2023 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,120,222 ​ ​ 5,120,222 Balance, March 31, 2023 ​ 1,909,187 ​ $ 1,909 ​ 43,756,724 ​ $ 43,757 ​ $ 235,709,499 ​ $ ( 469,853 ) ​ $ ( 6,289,257 ) ​ $ 228,996,055 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FOR THE THREE MONTHS ENDED MARCH 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ ​ Common Stock ​ Paid in ​ Comprehensive ​ Accumulated ​ ​ ​ ​ Shares Amount ​ Shares Amount Capital Loss Deficit Totals Balance, January 1, 2022 ​ 1,903,000 ​ $ 1,903 ​ 32,730,004 ​ $ 32,730 ​ $ 185,516,394 ​ $ ( 476,016 ) ​ $ ( 4,992,450 ) ​ $ 180,082,561 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Issuance of common shares, net of expenses ​ — ​ — ​ 2,730,725 ​ ​ 2,730 ​ ​ 15,545,085 ​ ​ — ​ — ​ 15,547,815 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercise of warrants ​ ​ — ​ ​ — ​ ​ 19,658 ​ ​ 20 ​ ​ ( 20 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock based compensation ​ ​ — ​ ​ — ​ ​ 33,500 ​ ​ 34 ​ ​ 106,845 ​ ​ — ​ ​ — ​ ​ 106,879 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain on marketable securities ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 242,808 ​ ​ — ​ ​ 242,808 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends paid on Series A Preferred Stock ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 921,766 ) ​ ​ ( 921,766 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income for the period ended March 31, 2022 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,351,466 ​ ​ 4,351,466 Balance, March 31, 2022 ​ 1,903,000 ​ $ 1,903 ​ 35,513,887 ​ $ 35,514 ​ $ 201,168,304 ​ $ ( 233,208 ) ​ $ ( 1,562,750 ) ​ $ 199,409,763 ​ The accompanying notes are an integral part of these financial statements. ​ ​ 3 Table of Contents SACHEM CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ Net income ​ $ 5,120,222 ​ $ 4,351,466 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Amortization of deferred financing costs and bond discount ​ 600,215 ​ 469,251 Depreciation expense ​ 40,132 ​ 22,239 Stock based compensation ​ 173,315 ​ 106,879 Allowance for credit losses ​ 101,515 ​ 105,000 Impairment loss ​ ​ — ​ ​ 155,500 (Gain) loss on sale of real estate ​ ​ ( 148,100 ) ​ ​ 65,838 Unrealized(gain) loss on investment securities ​ ​ ( 716,389 ) ​ ​ 1,052,230 (Gain) loss on sale of investment securities ​ ( 275,879 ) ​ 154,135 Changes in operating assets and liabilities: ​ ​ ​ (Increase) decrease in: ​ ​ ​ ​ Interest and fees receivable ​ ( 366,191 ) ​ ( 395,924 ) Other assets - miscellaneous ​ ( 499,651 ) ​ ( 210,688 ) Due from borrowers ​ ( 783,302 ) ​ ( 292,302 ) Other assets - prepaid expenses ​ 9,955 ​ 42,220 (Decrease) increase in: ​ ​ ​ ​ ​ Accounts payable and accrued liabilities - accrued interest ​ ​ 95,221 ​ ​ 121,913 Accounts payable and accrued liabilities - accounts payable and accrued expenses ​ ( 84,738 ) ​ 10,720 Deferred revenue ​ 320,608 ​ 232,794 Advances from borrowers ​ 1,422,458 ​ 1,563,852 Total adjustments ​ ( 110,831 ) ​ 3,203,657 ​ ​ ​ ​ ​ ​ ​ NET CASH PROVIDED BY OPERATING ACTIVITIES ​ 5,009,391 ​ 7,555,123 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ Purchase of investment securities ​ ​ ( 13,971,218 ) ​ ​ ( 27,545,183 ) Proceeds from the sale of investment securities ​ ​ 3,780,522 ​ ​ 51,705,055 Purchase of interests in investment partnerships, net ​ ​ ( 4,491,054 ) ​ ​ ( 11,358,017 ) Proceeds from sale of real estate owned ​ ​ 515,136 ​ ​ 622,737 Acquisitions of and improvements to real estate owned, net ​ ( 103,136 ) ​ ( 177,336 ) Purchase of property and equipment ​ ( 710,883 ) ​ ( 3,658 ) Principal disbursements for mortgages receivable ​ ( 58,883,818 ) ​ ( 88,735,230 ) Principal collections on mortgages receivable ​ 39,884,300 ​ 27,106,768 Other assets – pre-offering costs ​ ​ 25,111 ​ ​ ( 57,768 ) NET CASH USED FOR INVESTING ACTIVITIES ​ ( 33,955,040 ) ​ ( 48,442,632 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ Net proceeds from (repayment of) line of credit ​ 10,086,036 ​ ( 9,898,667 ) Net proceeds from repurchase facility ​ 11,522,349 ​ 7,857,960 Proceeds from mortgage ​ ​ 910,000 ​ ​ — Accounts payable and accrued liabilities - principal payments on other notes ​ ​ ( 4,252 ) ​ ​ ( 6,627 ) Dividends paid on Common Stock ​ ( 5,342,160 ) ​ ( 3,927,600 ) Dividends paid on Series A Preferred Stock ​ ( 924,762 ) ​ ( 921,766 ) Proceeds from issuance of common shares, net of expenses ​ ​ 9,181,158 ​ ​ 15,547,815 Proceeds from issuance of Series A Preferred Stock, net of expenses ​ ​ 136,699 ​ ​ — Gross proceeds from issuance of fixed rate notes ​ ​ — ​ ​ 50,000,000 Financings costs incurred in connection with fixed rate notes ​ ​ — ​ ​ ( 1,839,034 ) NET CASH PROVIDED BY FINANCING ACTIVITIES ​ 25,565,068 ​ 56,812,081 ​ ​ ​ ​ ​ ​ ​ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ​ ( 3,380,581 ) ​ 15,924,572 ​ ​ ​ ​ ​ ​ ​ CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR ​ 23,713,097 ​ 41,938,897 ​ ​ ​ ​ ​ ​ ​ CASH AND CASH EQUIVALENTS - END OF PERIOD ​ $ 20,332,516 ​ $ 57,863,469 ​ The accompanying notes are an integral part of these financial statements. 4 Table of Contents SACHEM CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOW (Continued) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION ​ ​ ​ Interest paid ​ $ 6,191,398 ​ $ 3,307,225 ​ Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable, during the three months ended March 31, 2023 amounted to $ 1,186,663 . ​ The accompanying notes are an integral part of these financial statements. ​ ​ 5 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 1. The Company Sachem Capital Corp. (the “Company”), a New York corporation, specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. The Company offers short term ( i.e. , one to three years ), secured, non-bank loans (sometimes referred to as “hard money” loans) to real estate owners and investors to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in the Northeastern United States and Florida. The properties securing the Company’s loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Each loan is secured by a first mortgage lien on real estate 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. The Company does not lend to owner occupants. The Company’s primary underwriting criteria is a conservative loan to value ratio. In addition, the Company may make opportunistic real estate purchases apart from its lending activities or enter into other transactions with third parties involving real estate financing transactions. ​ 2. Significant Accounting Policies Unaudited Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022 and the notes thereto included in the Company’s Annual Report on Form 10-K. Results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results to be attained in the entire fiscal year, or for any subsequent period. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on (a) various assumptions that are based on experience, (b) projections regarding future operations and (c) general financial market and local and general economic conditions. Actual amounts could materially differ from those estimates. Cash and Cash Equivalents The Company considers all demand deposits, cashier’s checks, money market accounts and certificates of deposit with an original maturity of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances typically exceed the Federal Deposit Insurance Corporation insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit. The Company does not believe that the risk is significant. Investment Securities The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. If qualitative factors indicate an available for sale debt security may be credit impaired the loss is measured as the excess of carrying value over the present value of expected cash flows, limited to the excess of carrying value over fair value. To determine credit losses, the Company may employ a systematic 6 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 methodology that considers available quantitative and qualitative evidence. In addition, the Company considers specific adverse conditions related to the financial health of, and business outlook for, the investee. If the Company has plans to sell the security or it is more likely than not that the Company will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in net income and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments. Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). The Company performs a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in net income. Current Expected Credit Losses Allowance The Company adopted the current expected credit loss (“CECL”) standard effective January 1, 2023 in accordance with ASU No. 2016-13. The initial CECL allowance adjustment of $ 2,489,574 was recorded effective January 1, 2023 as a cumulative-effect of change in accounting principle through a direct charge to accumulated deficit on the consolidated statements of shareholders’ equity; however, subsequent changes to the CECL allowance will be recognized in the consolidated statements of comprehensive income. The Company records an allowance for credit losses in accordance with the CECL standard on the Company’s loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics. This methodology replaces the probable incurred loss impairment methodology. In addition, interest and fees receivable and amounts included in due from borrowers, other than reimbursements, which include origination, modification and other fees receivable are also analyzed for credit losses in accordance with the CECL standard, as they represent a financial asset that is subject to credit risk. As allowed under the CECL standard the Company uses, as a practical expedient, the fair value of the collateral at the reporting date when recording the net carrying amount of the loan and determining the allowance for credit losses for loans in pending/pre-foreclosure status, as defined. Fair value of collateral is reduced by estimated cost to sell if the collateral is expected to be sold. The amount of loans in pending/pre-foreclosure as of March 31, 2023 and December 31, 2022 was approximately $ 40.6 million and $ 24.0 million, respectively. As of March 31, 2023 and December 31, 2022, there were no such loans in pending/pre-foreclosure that required an allowance for credit loss. The CECL standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the economic environment. The Company utilizes a loss-rate method for estimating current expected credit losses. The loss rate method involves applying a loss rate to a pool of loans with similar risk characteristics to estimate the expected credit losses on that pool of loans. In determining the CECL allowance, the Company considers various factors including (1) historical loss experience in its portfolio, (2) loan specific losses for loans deemed collateral dependent based on excess amortized cost over the fair value of the underlying collateral, and (3) its current and future view of the macroeconomic environment. The Company utilizes a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. Management estimates the allowance for credit losses using relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the loans based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. The CECL allowance related to the principal outstanding is presented within “Mortgages receivable, net” and for unfunded commitments is within accounts payable and accrued liabilities in the Company’s consolidated balance sheets. The CECL allowance related to the late payment fees are presented in “Interest and fees receivable” and “Due from borrowers” in the Company’s consolidated balance sheets. As of March 31, 2023 and January 1, 2023, the CECL allowance for mortgages receivable was approximately $ 2.0 million and approximately $ 1.9 million, respectively, an increase of approximately $ 55,000 . 7 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 As of March 31, 2023 and January 1, 2023, the CECL allowance for interest and fees receivable was approximately $ 30,100 and approximately $ 26,100 , respectively, an increase of $ 4,000 . As of March 31, 2023 and January 1, 2023, the CECL allowance for due from borrower was approximately $ 22,300 and $ 19,900 , respectively, an increase of approximately $ 2,400 . As of March 31, 2023 and January 1, 2023, the CECL allowance for unfunded commitments was $ 562,000 , and approximately $ 522,000 , respectively, an increase of approximately $ 40,000 . Fair Value Measurements The framework for measuring fair value provides a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company can access. Level 2 Inputs to the valuation methodology include: ● quoted prices for similar assets or liabilities in active markets; ● quoted prices for identical or similar assets or liabilities in inactive markets; ● inputs other than quoted prices that are observable for the asset or liability; and ● inputs that are derived principally from or corroborated by observable market data by correlation to other means. If the asset or liability has a specified (i.e., contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Property and Equipment Land and building acquired in December 2016 to serve as the Company’s office facilities is stated at cost. The building is being depreciated using the straight-line method over its estimated useful life of 40 years . Expenditures for repairs and maintenance are charged to expense as incurred. The Company relocated its entire operations to this property in March 2019. Land and building acquired in 2021 to serve as the Company’s future corporate headquarters is stated at cost. Renovation of the building was completed in the first quarter of 2023 and the Company relocated its operations to the new building in March 2023. The building is being depreciated using the straight-line method over its estimated useful life of 40 years . The new building was placed in service during the three months ended March of 2023. Real Estate Owned Real estate owned by the Company is stated at cost and is tested for impairment quarterly. 8 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 Consolidations The consolidated financial statements of the Company include the accounts of all subsidiaries in which the Company has control over significant operating, financial and investing decisions of the entity. All intercompany accounts and transactions have been eliminated. Impairment of Long-Lived Assets The Company monitors events or changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair market value of the assets. Goodwill Goodwill is not amortized, but rather tested for impairment annually or more frequently if events or changes in circumstances indicate potential impairment. Goodwill at March 31, 2023 represents the excess of the consideration paid over the fair value of net assets acquired from Urbane New Haven, LLC in October 2022. In testing goodwill for impairment, the Company follows FASB ASC 350, “Intangibles—Goodwill and Other”, which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, or the Company chooses not to perform the qualitative assessment, then the Company compares the fair value of that reporting unit with its carrying value, including goodwill. Deferred Financing Costs Costs incurred in connection with the Company’s revolving credit facilities, described in Note 7-Line of Credit, Mortgage Payable, Churchill Facility, and Needham Facility are, amortized over the term of the applicable facility using the straight-line method. Costs incurred by the Company in connection with the public offering of its unsecured, unsubordinated notes, described in Note 9 - Notes Payable, are being amortized over the term of the respective Notes. Revenue Recognition Interest income from the Company’s loan portfolio is earned over the loan period and is calculated using the simple interest method on principal amounts outstanding. Generally, the Company’s loans provide for interest to be paid monthly in arrears. The Company, generally, does not accrue interest income on mortgages receivable that are more than 90 days past due or interest charged at default rates. However, interest income not accrued at March 31, 2023 but collected prior to the issuance of this report is included in income for the period ended March 31, 2023. Origination and modification fee revenue, generally 1 % –  3 % of either the original loan principal or the modified loan balance, is collected at loan funding and is recognized ratably over the contractual life of the loan in accordance with ASC 310. Income Taxes The Company believes it qualifies as a real estate investment trust (“REIT”) for federal income tax purposes and operates accordingly. It made the election to be taxed as a REIT on its 2017 Federal income tax return. The Company’s qualification as a REIT 9 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 depends on its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of its income, the composition and values of its assets, its compliance with the distribution requirements applicable to REITs and the diversity of ownership of its outstanding capital stock. So long as it qualifies as a REIT, the Company, generally, will not be subject to U.S. federal income tax on its taxable income distributed to its shareholders. However, if it fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal income tax at regular corporate rates and may also be subject to various penalties and may be precluded from re-electing REIT status for the four taxable years following the year during in which it lost its REIT qualification. The Company has elected, and may elect in the future, to treat certain of its existing or newly created corporate subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, a TRS may hold assets that the Company cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in federal and state income tax liability for these entities. The Company does not expect to incur any corporate federal income tax liability outside of the TRSs, as it believes it has maintained its qualification as a REIT. During the three months ended March 31, 2023 and 2022, the Company’s TRSs recognized no provisions for federal income tax or state, local and franchise taxes on the Company’s consolidated statements of operations. During the three months ended March 31, 2023 and 2022, there were no recognized provisions for federal income tax nor state, local and franchise tax. The income tax provision for the Company differs from the amount computed from applying the statutory federal income tax rate to income before income taxes due to non-taxable REIT income and other permanent differences including the non-deductibility of acquisition costs of business combinations for federal income tax reporting. FASB ASC Topic 740-10 “Accounting for Uncertainty in Income Taxes ” prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and disclosure required. Under this standard, an entity may only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in interest expense. The Company has determined that there are no uncertain tax positions requiring accrual or disclosure in the accompanying consolidated financial statements as of March 31, 2023 and 2022. Earnings Per Share Basic and diluted earnings per share are calculated in accordance with ASC 260 — “ Earnings Per Share. ” Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”, (ASU 2016-13), which changes accounting requirements for the measurement and recognition of expected credit losses from an incurred or probable methodology to a current expected credit loss methodology. Mortgages receivable, unfunded loan commitments, interest and fees receivable and amounts included in due from borrowers, other than reimbursements, which include origination, modification and other fees receivable are the only items currently held by the Company that are within the scope of ASU 2016-13. The Company adopted this ASU effective January 1, 2023 and applied a modified retrospective approach through a cumulative-effect adjustment to retained earnings upon adoption. At transition on January 1, 2023, the cumulative effect of adopting this ASU resulted in a decrease in retained earnings of $ 2,489,574 and an increase in the allowance for credit losses. The increase in the allowance is driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also takes into account forecasts of expected future economic conditions. 10 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses” (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for troubled debt restructurings (“TDR”) for creditors that have adopted the CECL standard and requires enhanced disclosures for loan modifications made to borrowers experiencing financial difficulty in the form of interest rate reductions, principal forgiveness, other-than-insignificant payment delays, or term extensions. In addition, the new guidance requires presentation in the vintage disclosures of current-period gross write-offs by year of origination. The amendments in this update became effective for fiscal years beginning after December 15, 2022. This update did not have a material effect on the Company’s financial statements. In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 was issued to (1) to clarify the guidance in FASB ASC Topic 820, “Fair Value Measurement”, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with FASB ASC Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not anticipate that this update will have a material impact on its consolidated financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s consolidated financial statements. Reclassifications Certain amounts included in the March 31, 2022 and December 31, 2022 consolidated financial statements have been reclassified to conform to the March 31, 2023 presentation. ​ 3. Fair Value Measurement The fair value measurement level within the fair value hierarchy of an asset or liability is based on the lowest level of any input that is significant to the fair market value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table sets forth by Level, within the fair value hierarchy, the Company’s assets at fair value as of March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 1 Level 2 Level 3 Total Stocks and ETFs ​ $ — ​ $ 1,403,680 ​ $ — ​ $ 1,403,680 Mutual funds ​ ​ 15,193,680 ​ ​ — ​ ​ — ​ ​ 15,193,680 Debt securities ​ ​ 18,109,325 ​ 1,130,517 ​ — ​ ​ 19,239,842 Total liquid investments ​ $ 33,303,005 ​ $ 2,534,197 ​ $ — ​ $ 35,837,202 Real estate owned ​ $ — ​ $ — ​ $ 6,138,912 ​ $ 6,138,912 ​ The following table sets forth by Level, within the fair value hierarchy, the Company’s assets at fair value as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 1 Level 2 Level 3 Total Stocks and ETF’s ​ $ 3,282,659 ​ $ 1,446,065 ​ — ​ $ 4,728,724 Mutual funds ​ 14,850,839 ​ — ​ — ​ 14,850,839 Debt securities ​ 3,880,045 ​ 1,116,854 ​ — ​ 4,996,899 Total liquid investments ​ $ 22,013,543 ​ $ 2,562,919 ​ — ​ $ 24,576,462 Real estate owned ​ — ​ — ​ $ 5,216,149 ​ $ 5,216,149 ​ 11 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 Following is a description of the methodologies used for assets measured at fair value: Stocks and ETFs (level 1 and 2): Valued at the closing price reported in the active market in which the individual securities are traded. Mutual funds (level 1 and 2): Valued at the daily closing price reported by the fund. Mutual funds held by the Company are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. These funds are required to publish their daily net asset values and to transact at that price. The mutual funds held by the Company are deemed to be actively traded. Debt securities : Valued at the closing price reported in the active market in which the individual securities are traded. Real estate owned : The Company estimates fair values of real estate owned using market information such as recent sales contracts, appraisals, recent sales, assessed values or discounted cash value models. ​ See Note 5 for the roll forward of real estate owned – Level 3 assets. Impact of Fair Value of AFS Securities on OCI The carrying value of the Company’s financial instruments approximates fair value generally due to the relative short-term nature of such instruments. Other financial assets and financial liabilities have fair value that approximate their carrying value. Pursuant to ASC 326-30-50-4 and 50-5 the Company is required to disclose investment securities that have been in a continuous unrealized loss position for 12 months or more as of the balance sheet date. As of March 31, 2023 and December 31, 2022, the Company had a continuous unrealized losses over 12 months in Available-For-Sale debt securities of approximately $ 517,000 and approximately $ 531,000 , respectively. The Company reviewed a number of factors to assess the credit quality of the debt instruments including, but not limited to, current cash position, operating cash flow, and corporate earnings as of the most recently filed financial statements. As such, as of March 31, 2023, the Company has concluded no such allowance for credit losses in regards to Available-For-Sale debt securities was deemed necessary. The following table presents the impact of the Company’s Available-For-Sale (AFS) securities - debt securities on its Other Comprehensive Income (OCI) for the three months ended March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months Ended ​ ​ March 31, ​ ​ 2023 ​ 2022 OCI from AFS securities: ​ ​ Unrealized (loss) on AFS-debt securities at beginning of period ​ $ ( 561,490 ) ​ $ ( 476,016 ) Unrealized gain on securities available-for-sale – debt securities ​ 91,637 ​ 242,808 Change in OCI from AFS securities – debt securities ​ 91,637 ​ 242,808 Balance at end of period ​ $ ( 469,853 ) ​ $ ( 233,208 ) ​ ​ 4. Mortgages Receivable The Company offers secured, non-bank loans to real estate owners and investors (also known as “hard money” loans) to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in the Northeastern United States and Florida. The Company’s lending standards typically require that the original principal amount of all mortgage receivable notes be secured by first mortgage liens on one or more properties owned by the borrower or related parties and that the maximum LTV be no greater than 70% of the appraised value of the underlying collateral, as determined by an independent appraiser at the time of the loan origination. The Company considers the maximum LTV as an indicator for the credit quality of a mortgage note receivable. 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, the Company makes exceptions to this guideline if the facts and circumstances support the incremental risk. These factors include the additional collateral provided by the borrower, the 12 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 credit profile of the borrower, the Company’s 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 the Company deems appropriate. The loans are generally for a term of one to three years . The loans are initially recorded and carried thereafter, in the financial statements, at cost. Most of the loans provide for monthly payments of interest only (in arrears) during the term of the loan and a “balloon” payment of the principal on the maturity date. Allowance for credit losses are charged to income in amounts sufficient to maintain an allowance for credit losses inherent in the loans which are established systematically by management as of the reporting date. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. The Company uses static pool modeling techniques to determine the allowance for loan losses expected over the remaining life of the loans, which is supplemented by management judgment. Expected losses are estimated for groups of accounts aggregated by geographical location. The Company’s estimate of expected credit losses includes a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. The Company reviews charge-off experience factors, contractual delinquency, historical collection rates, the value of underlying collateral and other information to make the necessary judgments as to credit losses expected in the portfolio as of the reporting date. While management utilizes the best information available to make its evaluations, changes in macroeconomic conditions, interest rate environments, or both, may significantly impact the assumptions and inputs used in determining the allowance for credit losses. The Company’s charge-off policy is based on a loan by loan review of delinquent loans. The Company has an accounting policy to not place loans on nonaccrual status unless they are greater than 90 days delinquent. Accrual of interest income is generally resumed when delinquent contractual principal and interest is paid or when a portion of the delinquent contractualy payments are made and the ongoing required contractual payments have been made for an appropriate period. As of March 31, 2023 and December 31, 2022, the Company had an outstanding principal balance of $ 97,106,984 and $ 55,691,857 of loans on nonaccrual status, respectively. The nonaccrual loans are inclusive of loans pending foreclosure. For the three months ended March 31, 2023, $ 649,347 of interest income was recorded on nonaccrual loans. For the three months ended March 31, 2023 and 2022, the aggregate amounts of loans funded by the Company were $ 58,883,818 and $ 88,735,230 , respectively, offset by principal repayments of $ 39,884,300 and $ 27,106,768 , respectively. As of March 31, 2023, the Company’s mortgage loan portfolio includes loans ranging in size up to $ 29,919,097 with stated interest rates ranging from 5.0 % to 14.2 % . The default interest rate is generally 18 %, but could be more or less depending on state usury laws. At March 31, 2023, and December 31, 2022, no single borrower or group of related borrowers had loans outstanding representing more than 10 % of the total balance of the loans outstanding. The Company may agree to extend the term of a loan if, at the time of the extension, the loan and the borrower meet all the Company’s then underwriting requirements. The Company treats a loan extension as a new loan. If an interest reserve is established at the time a loan is funded, accrued interest is paid out of the interest reserve and recognized as interest income at the end of each month. If no reserve is established, the borrower is required to pay the interest monthly from its own funds. The deferred origination, loan servicing and amendment fee income represents amounts that will be recognized over the contractual life of the underlying mortgage notes receivable. Allowance for Credit Loss In assessing the Allowance for Credit Losses (“CECL Allowance”), the Company considers historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The Company derived an annual historical loss rate based on its historical loss experience in its portfolio, adjusted to incorporate the risks of construction lending and to reflect the Company’s expectations of the macroeconomic environment. 13 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 The following table summarizes the activity in the CECL Allowance from adoption on January 1, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CECL Allowance ​ ​ ​ ​ ​ ​ ​ Provision for ​ CECL ​ ​ as of December ​ Adoption of ASU ​ ​ ​ ​ CECL ​ Allowance as of (dollars in thousands) 31, 2022 (1) 2016-13 (2) Charge-offs Allowance March 31, 2023 Geographical Location ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ New England ​ $ 105 ​ $ 1,302 ​ $ — ​ $ 3 ​ $ 1,410 West ​ — ​ 7 ​ — ​ — ​ 7 South ​ — ​ 402 ​ — ​ 56 ​ 458 Mid-Atlantic ​ — ​ 210 ​ — ​ ( 3 ) ​ 207 Total ​ $ 105 ​ $ 1,921 ​ $ — ​ $ 56 ​ $ 2,082 ​ (1) As of December 31, 2022, amounts represent probable loan loss provisions recorded before the adoption of the ASU 2016-13. (2) As a component of the adoption of ASU 2016-13, $ 562,000 of the CECL allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable and accrued liabilities in the Company’s consolidated balance sheet. Presented below is the Company’s loan portfolio by geographical location: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 (dollars in thousands) Carrying Value % of Portfolio Carrying Value % of Portfolio ​ Geographical Location ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ New England ​ $ 226,026 47.23 % $ 225,603 48.97 % West ​ 3,150 0.66 % 3,150 0.68 % South ​ 154,662 32.32 % 135,857 29.49 % Mid-Atlantic ​ 94,713 19.79 % 96,128 20.86 % Total ​ ​ 478,551 100.00 % ​ 460,738 100.00 % Less, CECL Allowance ​ 2,082 ​ ​ ​ 105 ​ ​ ​ Carrying value, net ​ $ 476,469 ​ ​ $ 460,633 ​ ​ ​ ​ Presented below are the carrying values by Property Type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 ​ ​ Outstanding ​ ​ ​ Outstanding ​ ​ ​ (dollars in thousands) Principal % of Portfolio Principal % of Portfolio Property Type ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ $ 217,734 45.50 % $ 229,944 49.91 % Commercial ​ 167,814 35.07 % 154,929 33.63 % Land ​ 63,515 13.27 % 46,499 10.09 % Mixed use ​ 29,488 6.16 % 29,366 6.37 % Total ​ ​ 478,551 100.00 % ​ 460,738 100.00 % Less, CECL Allowance ​ 2,082 ​ ​ 105 ​ Carrying value, net ​ $ 476,469 ​ ​ ​ $ 460,633 ​ ​ 14 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 The following tables allocate the carrying value of the Company’s loan portfolio based on internal credit quality indicators in assessing estimated credit losses and vintage of origination at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ Year Originated (1) ​ ​ Carrying ​ % of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO Score (2) (dollars in thousands) Value Portfolio 2023 ​ 2022 ​ 2021 ​ 2020 Prior ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Under 500 $ 443 0.09 % $ — $ — $ — $ — $ 443 501-550 ​ 4,637 0.97 % ​ — ​ — ​ 1,779 ​ 49 ​ 2,809 551-600 ​ 10,806 2.26 % ​ — ​ 2,678 ​ 5,073 ​ 700 ​ 2,355 601-650 ​ 40,514 8.47 % ​ 2,693 ​ 19,205 ​ 7,238 ​ 6,333 ​ 5,045 651-700 ​ 90,868 18.99 % ​ 6,784 ​ 32,306 ​ 34,570 ​ 7,113 ​ 10,095 701-750 ​ 177,295 37.04 % ​ 15,961 ​ 54,823 ​ 91,255 ​ 8,477 ​ 6,779 751-800 ​ 138,329 28.91 % ​ 3,231 ​ 75,055 ​ 48,163 ​ 9,997 ​ 1,883 801-850 ​ 15,659 3.27 % ​ — ​ 15,035 ​ — ​ 359 ​ 265 Total ​ 478,551 100.00 % $ 28,669 $ 199,102 $ 188.078 $ 33,028 $ 29,674 Less, CECL Allowance ​ 2,082 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying value, net $ 476,469 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Represents the year of origination or amendment where the loan was subject to a full re-underwriting. (2) The FICO Scores are calculated at the inception of the loan and are updated if the loan is modified or on an as needed basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Year Originated (1) ​ ​ Carrying ​ % of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO Score (2) (dollars in thousands) Value Portfolio 2022 2021 2020 2019 Prior ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Under 500 $ 629 0.14 % $ — $ — $ 185 $ 235 $ 209 501-550 ​ 4,786 1.04 % ​ — ​ 1,779 ​ 87 ​ 803 ​ 2,117 551-600 ​ 15,977 3.47 % ​ 3,061 ​ 8,256 ​ 1,836 ​ 1,357 ​ 1,467 601-650 ​ 40,349 8.76 % ​ 21,382 ​ 7,474 ​ 6,273 ​ 1,547 ​ 3,673 651-700 ​ 84,085 18.25 % ​ 33,832 ​ 31,342 ​ 7,398 ​ 5,269 ​ 6,244 701-750 ​ 174,347 37.83 % ​ 65,190 ​ 90,524 ​ 11,892 ​ 5,527 ​ 1,214 751-800 ​ 125,347 27.21 % ​ 68,826 ​ 45,038 ​ 9,470 ​ 1,640 ​ 373 801-850 ​ 15,218 3.30 % ​ 14,554 ​ — ​ 399 ​ — ​ 265 Total ​ 460,738 100.00 % $ 206,845 $ 184,413 $ 37,540 $ 16,378 $ 16,562 Less, CECL Allowance ​ 105 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying value, net $ 460,633 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Represents the year of origination or amendment where the loan was subject to a full re-underwriting. (2) The FICO Scores are calculated at the inception of a loan and are updated if the loan is modified or on an as needed basis. ​ 15 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 The following table sets forth the maturities of mortgages receivable as of March 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2023 As of December 31, 2022 2023 and prior ​ $ 300,437,227 ​ $ 372,964,665 2024 ​ 163,582,069 ​ 85,968,294 2025 ​ 14,428,471 ​ 1,699,500 2026 ​ — ​ — 2027 ​ ​ — ​ ​ — Thereafter ​ ​ 103,356 ​ ​ 105,809 Total ​ ​ 478,551,123 ​ ​ 460,738,268 Less, CECL Allowance ​ ​ 2,081,659 ​ ​ 105,000 Total ​ $ 476,469,464 ​ $ 460,633,268 ​ At March 31, 2023, of the 406 mortgage loans included in the Company’s loan portfolio, 128 , or approximately 31.5 %, representing approximately $ 81.4 million of mortgage receivables have matured but have not been repaid in full or extended. The 128 aforementioned loans are inclusive of loans in pending/pre-foreclosure status. These loans are in the process of modification and will be extended if the borrower can satisfy the Company’s underwriting criteria, including the proper loan-to-value ratio, at the time of renewal. The Company treats renewals and extensions of existing loans as new loans. At March 31, 2023, of the 406 mortgage loans in the Company’s loan portfolio, 52 were the subject of foreclosure proceedings. The aggregate outstanding principal balance of these loans and the accrued but unpaid interest and borrower charges as of March 31, 2023 was approximately $ 40.6 million. In the case of each of these loans, the Company believes the value of the collateral exceeds the outstanding balance on the loan. At December 31, 2022, of the 444 mortgage loans included in the Company’s loan portfolio, 105 , or approximately 23.6 %, representing approximately $ 61.7 million of mortgage receivables had matured 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 the Company’s underwriting criteria, including the proper loan-to-value ratio, at the time of renewal. The Company treats renewals and extensions of existing loans as new loans. At December 31, 2022, of the 444 mortgage loans in the Company’s loan portfolio, 40 were the subject of foreclosure proceedings. The aggregate outstanding principal balance of these loans and the accrued but unpaid interest and borrower charges as of December 31, 2022 was approximately $ 24.0 million. In the case of each of these loans, the Company believed the value of the collateral exceeded the outstanding balance on the loan. 5. Real Estate Owned Property purchased for rental or acquired through foreclosure are included on the balance sheet as real estate owned. As of March 31, 2023 and March 31, 2022, real estate owned totaled $ 6,138,912 and $ 6,312,818 , respectively, with no valuation allowance. During the three months ended March 31, 2023, the Company recorded an impairment loss of $- 0 - compared to an impairment loss of $ 155,500 during the three months ended March 31, 2022. ​ As of March 31, 2023, real estate owned included $ 813,090 of real estate held for rental and $ 5,325,822 of real estate held for sale. As of March 31, 2022, real estate owned included $ 799,533 of real estate held for rental and $ 5,513,285 of real estate held for sale. Properties Held for Sale During the three months ended March 31, 2023, the Company sold two properties held for sale and recognized an aggregate gain of $ 148,100 . During the three months ended March 31, 2022, the Company sold a property held for sale and recognized an aggregate loss of $ 65,838 . 16 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 Properties Held for Rental As of March 31, 2023, one property, a commercial building, was held for rental. The tenant signed a five-year lease that commenced on August 1, 2021. Rental payments due from real estate held for rental are as follows: ​ ​ ​ ​ ​ Year ending December 31, 2023 $ 53,200 Year ending December 31, 2024 ​ 53,200 Year ending December 31, 2025 ​ 53,200 Year ending December 31, 2026 ​ ​ 31,033 Total ​ $ 190,633 ​ ​ 6. Other Assets As of March 31, 2023 and December 31, 2022, other assets consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Prepaid expenses ​ $ 400,418 ​ $ 410,373 Other receivables ​ 3,741,984 ​ 3,519,804 Other assets ​ 459,291 ​ 477,048 Goodwill ​ ​ 391,000 ​ ​ 391,000 Intangible asset – trade name ​ ​ 130,400 ​ ​ 130,400 Deferred financing costs, net ​ 297,274 ​ 54,548 Total ​ $ 5,420,367 ​ $ 4,983,173 ​ ​ 17 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 ​ 7. Line of Credit, Mortgage Payable, Churchill Facility, Credit Facility Wells Fargo Margin Line of Credit During the year ended December 31, 2020, the Company established a margin loan account at Wells Fargo Advisors that is secured by the Company’s portfolio of short-term securities. The credit line bears interest at a rate equal to 1.75 % below the prime rate ( 6.25 % at March 31, 2023, 6.50 % as of May 11, 2023). As of March 31, 2023 the total outstanding balance on the Wells Fargo credit line was $ 13,673,930 . Mortgage Payable In 2021, the Company 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 as of December 31, 2022. 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 on the NHB Mortgage were to be due and payable on a monthly basis. All payments under the NHB Mortgage was to be amortized based on a 20 -year amortization schedule. The interest rate was to be adjusted on each of December 1, 2027 and 2032 to the then published 5 -year Federal Home Loan Bank of Boston Classic Advance Rate, plus 2.60 %. The NHB Mortgage was a non-recourse loan, secured by a first mortgage lien on each of the properties, located at 698 Main Street, Branford, Connecticut, and 568 East Main Street, Branford, Connecticut. The $ 750,000 of proceeds funded at closing were used to reimburse the Company for out-of-pocket costs relating to the acquisition of the East Main Street property. On February 28, 2023, the Company refinanced the NHB Mortgage with a new $ 1.66 million adjustable-rate mortgage loan from New Haven Bank (the “New NHB Mortgage”). 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, which are owned by the Company. Churchill MRA Funding I LLC Repurchase Financing Facility On July 21, 2021, the Company consummated a $ 200 million master repurchase financing facility (“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. Under the terms of the Facility, the Company has 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, the Company has 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, as defined, to the purchase price of the mortgage loan. The Company has also pledged the mortgage loans sold to Churchill to secure its repurchase obligation. The cost of capital under the Facility is equal to the sum of (a) the greater of (i) 0.25 % and (ii) the 90 -day LIBOR plus (b) 3 %- 4 %, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time. On November 18, 2022, the Facility was amended to replace the 90-day LIBOR with the 90-day SOFR as the new benchmark rate. As of March 31, 2023 the effective rate charged under the Facility was 9.09 %. The Facility is subject to other terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements. Under one such covenant, the Company (A) is prohibited from (i) paying any dividends or making distributions in excess of 90% of its taxable income, (ii) incurring any indebtedness or (iii) purchasing any of its capital stock, unless, it has an asset coverage ratio of at least 150 %; and (B) must maintain unencumbered cash and cash equivalents in an amount equal to or greater than 2.50 % of the amount of its repurchase obligations. Churchill has the right to terminate the Facility at any time upon 180 days prior notice to the Company. The Company then has an additional 180 days after termination to repurchase all the mortgage loans held by Churchill. 18 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 The Company uses the proceeds from the Facility to finance the continued expansion of its lending business and for general corporate purposes. At March 31, 2023, the total amount outstanding under the Facility was $ 54,055,815 . The collateral pledged to Churchill at March 31, 2023 was 31 mortgage loans that in the aggregate had unpaid principal balance of approximately $ 87.9 million. Each of the New NHB Mortgage and the Churchill Facility contain cross-default provisions. Needham Bank Credit Facility On March 2, 2023, the Company entered into a Credit and Security Agreement (the “Credit Agreement”), with Needham Bank, a Massachusetts co-operative bank, as the administrative agent (the “Administrative Agent”) for the lenders party thereto (the “Lenders”) with respect to a $ 45 million revolving credit facility (the “Credit Facility”). Under the Credit Agreement, the Company also has the right to request an increase in the size of the Credit Facility up to $ 75 million, subject to certain conditions, including the approval of the Lenders. Loans under the Credit Facility accrue interest at the greater of (i) the annual rate of interest equal to the “prime rate,” as published in the “Money Rates” column of The Wall Street Journal minus one-quarter of one percent ( 0.25 %), and (ii) four and one-half percent ( 4.50 %). All amounts borrowed under the Credit Facility are secured by a first priority lien on virtually all Company’s assets. Assets excluded from the lien include real estate owned by the Company (other than real estate acquired pursuant to foreclosure) and mortgages sold to Churchill under the Facility. The Credit Facility expires March 2, 2026 but the Company has a right to extend the term for one year upon the consent of the Administrative Agent and the Lenders, which consent cannot be unreasonably withheld, and so long as it is not in default and satisfies certain other conditions. All outstanding revolving loans and accrued but unpaid interest are due and payable on the expiration date. The Company may terminate the Credit Facility at any time without premium or penalty by delivering written notice to the Administrative Agent at least ten ( 10 ) days prior to the proposed date of termination. The Credit 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 requires the Company to maintain: (A) a ratio of Adjusted EBITDA (as defined in the Credit Agreement) to Debt Service (as defined in the Credit Agreement) of less than 1.40 to 1.0, tested on a trailing-twelve-month basis at the end of each fiscal quarter, commencing with the quarter ending June 30, 2023; (B) a sum of cash, cash equivalents and availability under the facility equal to or greater than $ 10 million; and (C) an asset coverage ratio of at least 150 %. ​ 19 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 ​ 8. Notes Payable At March 31, 2023, the Company had an aggregate of $ 280,608,110 of unsecured, unsubordinated notes payable outstanding, net of $ 7,793,640 of deferred financing costs (collectively, the “Notes”). Currently, the Company has seven series of Notes outstanding: (i) Notes having an aggregate principal amount of $ 23,663,000 bearing interest at 7.125 % per annum and maturing June 30, 2024 (“the June 2024 Notes”); (ii) Notes having an aggregate principal amount of $ 34,500,000 bearing interest at 6.875 % per annum and maturing December 30, 2024 (the “December 2024 Notes”); (iii) Notes having an aggregate principal amount of $ 56,363,750 bearing interest at 7.75 % per annum and maturing September 30, 2025 (the “September 2025 Notes”); (iv) Notes having an aggregate principal amount of $ 51,750,000 bearing interest at 6.0 % per annum and maturing December 30, 2026 (the “December 2026 Notes”); (v) Notes having an aggregate principal amount of $ 51,875,000 bearing interest at 6.0 % per annum and maturing March 30, 2027 (the “March 2027 Notes”); (vi) Notes having an aggregate principal amount of $ 30,000,000 bearing interest at 7.125 % per annum and maturing June 30, 2027 (the “June 2027 Notes”); and (vii) Notes having an aggregate principal amount of $ 40,250,000 bearing interest at 8.00 % per annum and maturing September 30, 2027 (the “September 2027 Notes”). The Notes were sold in underwritten public offerings, were issued in denomination of  $ 25.00 each and are listed on the NYSE American and trade under the symbols “SCCB,” “SACC,” “SCCC,” “SCCD,” “SCCE,” “SCCF” and “SCCG,” respectively. All the Notes were issued at par except for the last tranche of the September 2025 notes, in the original principal amount of $ 28 million, which were issued at $ 24.75 each. Interest on the Notes is payable quarterly on each March 30, June 30, September 30 and December 30 that they are outstanding. So long as the Notes are outstanding, the Company is prohibited from making distributions in excess of 90 % of its taxable income, incurring any additional indebtedness or purchasing any shares of its capital stock unless it has an “Asset Coverage Ratio” of at least 150 % after giving effect to the payment of such dividend, the incurrence of such indebtedness or the application of the net proceeds, as the case may be. The Company may redeem the Notes, in whole or in part, without premium or penalty, at any time after their second anniversary of issuance upon at least 30 days prior written notice to the holders of the Notes. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including the date of redemption. Currently, the June 2024 Notes, December 2024 Notes and the September 2025 Notes are callable at any time. The December 2026 Notes will be callable at any time after December 30, 2023, the March 2027 Notes will be callable at any time after March 9, 2024, the June 2027 Notes will be callable at any time after May 11, 2024, and the September 2027 Notes will be callable at any time after August 23, 2024. 20 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 The following are the future principal payments on the notes payable as of March 31, 2023: ​ ​ ​ ​ Year ending December 31, Amount Remainder of 2023 ​ $ — 2024 ​ 58,163,000 2025 ​ 56,363,750 2026 ​ 51,750,000 2027 ​ 122,125,000 Total principal payments ​ 288,401,750 Deferred financing costs ​ ( 7,793,640 ) Total notes payable, net of deferred financing costs ​ $ 280,608,110 ​ The estimated amortization of the deferred financing costs as of March 31, 2023 is as follows: ​ ​ ​ ​ Year ending December 31, Amount Remainder of 2023 ​ $ 1,745,150 2024 ​ 2,336,228 2025 ​ 1,807,606 2026 ​ 1,410,319 2027 ​ 494,337 Total deferred costs ​ $ 7,793,640 ​ ​ 9. Accounts Payable and Accrued Liabilities As of March 31, 2023 and December 31, 2022, accounts payable and accrued liabilities include the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Accounts payable and accrued expenses $ 1,025,051 $ 1,109,789 CECL - allowance for unfunded contractual obligation credit losses ​ ​ 562,000 ​ ​ — Other notes ​ 1,762 ​ 6,014 Accrued interest ​ 418,637 ​ 323,416 Total ​ $ 2,007,450 ​ $ 1,439,219 ​ ​ ​ 10. Fee and Other Income For the three month periods ended March 31, 2023 and 2022, fee and other income consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months ​ ​ ended March 31, ​ 2023 2022 Late and other fees ​ $ 113,131 ​ $ 128,864 Processing fees ​ 32,070 ​ 65,855 Rental income, net ​ 13,300 ​ 10,042 Extension fees ​ 180,410 ​ 101,834 Other fees ​ ​ 203,029 ​ ​ 50,562 Legal fees ​ ​ 96,500 ​ ​ 62,100 Other income ​ ​ 69,165 ​ ​ 189,307 Total ​ $ 707,605 ​ $ 608,564 ​ ​ 21 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 11. Commitments and Contingencies Origination and Modification Fees Loan origination and modification fees generally range from 1 % - 3 % each of the original loan principal or the modified loan balance and, generally, are payable at the time the loan is funded or modified. The unamortized portion is recorded as deferred revenue on the consolidated balance sheet. At March 31, 2023, deferred revenue was $ 4,681,060 , which will be recorded as income as follows: ​ ​ ​ ​ ​ Year ending December 31, 2023 $ 3,578,108 Year ending December 31, 2024 ​ ​ 924,890 Year ending December 31, 2025 ​ ​ 178,062 Total ​ $ 4,681,060 ​ In instances in which mortgages are repaid before their maturity date, the balance of any unamortized deferred revenue is recognized in full at the time of repayment. Employment Agreements In February 2017, the Company entered into an employment agreement with John Villano, the material terms of which are as follows: (i) the employment term is five years with extensions for successive one-year periods unless either party provides written notice at least 180 days prior to the next anniversary date of its intention to not renew the agreement; (ii) a base salary of $ 260,000 , which was increased in April 2018, April 2021 and April 2022 to $ 360,000 , $ 500,000 and $ 750,000 , respectively; (iii) incentive compensation in such amount as determined by the Compensation Committee of the Company’s Board of Directors; (iv) participation in the Company’s employee benefit plans; (v) full indemnification to the extent permitted by law; (vi) a two-year non-competition period following the termination of employment without cause; and (vii) payments upon termination of employment or a change in control. In April 2021, the Company granted 89,928 restricted common shares (having a market value of approximately $ 500,000 ) to Mr. Villano. One -third of such shares vested on each of January 1, 2022 and 2023, and the remaining one -third will vest on January 1, 2024. In April 2022, the Company granted 98,425 restricted common shares (having a market value of approximately $ 500,000 ) to Mr. Villano. One-third of such shares vested on January 1, 2023, and an additional one-third will vest on each of January 1, 2024 and 2025 . In February 2023, the Company granted 130,890 restricted common shares (having a market value of approximately $ 500,000 ) to Mr. Villano. One -third of such shares will vest on each of January 1, 2024, 2025 and 2026 . As of March 31, 2023, 226,483 restricted common shares remain unvested. In July 2022, the Company entered into an employment agreement with John E. Warch, the material terms of which are as follows: (i) the employment term commenced on August 1, 2022 and will continue until terminated by either party; (ii) a base salary of $ 325,000 ; (iii) incentive compensation in such amount as determined by the Compensation Committee of the Company’s Board of Directors; (iv) participation in the Company’s employee benefit plans; (v) full indemnification to the extent permitted by law; and (vi) payments upon termination of employment or a change in control. In February 2023, the Company granted 8,000 restricted common shares (having a market value of approximately $ 30,000 ) to Mr. Warch. One -third of such shares vested on February 9, 2023, and an additional one -third will vest on each of Febuary 9, 2024 and 2025. As of March 31, 2023, 5,333 restricted common shares remain unvested. Mr. Warch’s employment with the Company was terminated effective May 4, 2023. Unfunded Commitments At March 31, 2023, the Company had future funding obligations totaling $ 114,851,913 , which can be drawn by the borrowers when the conditions relating thereto have been satisfied. The unfunded commitments will be will be funded from loan payoffs and additional drawdowns under existing and future credit facilities and proceeds from sale of debt and equity securities. 22 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 Other In the normal course of its business, the Company is named as a party-defendant in connection with tax foreclosure proceedings against properties on which it holds a first mortgage lien. The Company actively monitors these actions and, in all cases, believes there remains sufficient value in the subject property to assure that no loan impairment exists. At March 31, 2023, there were three such proceedings. The unpaid principal balances on the properties that are the subject of these proceedings was approximately $ 631,000 . ​ In accordance with the asset purchase agreement with Urbane New Haven, LLC in October 2022 under certain circumstances the Company will be required to pay the seller 20 % of the net proceeds, as defined, of certain real estate development projects completed by the Company until such time that the principal former owner is no longer employed by the Company. Any future payments will be expensed and included in net income. ​ 12. Related Party Transactions In the ordinary course of business, the Company may originate, fund, manage and service loans to shareholders. The underwriting process on these loans adheres to prevailing Company policy. The terms of such loans, including the interest rate, income, origination fees and other closing costs are the same as those applicable to loans made to unrelated third parties in the portfolio. As of March 31, 2023, and 2022, loans to known shareholders totaled $ 25,436,352 and $ 15,594,572 , respectively. Interest income earned on these loans for the three months ended March 31, 2023 and 2022 totaled $ 506,093 and $ 347,638 , respectively. The wife of the Company’s chief executive officer was employed by the Company as its director of finance until the third quarter of 2022 when she retired. For the three month periods ended March 31, 2023 and 2022, she was paid $ 0 and $ 27,500 , respectively, as compensation from the Company. In December 2021, the Company hired the daughter of the Company’s chief executive officer to perform certain internal audit and compliance services. For the three month period ended March 31, 2023 and 2022, she received compensation of $ 43,000 and $ 27,500 , respectively. ​ 13. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, investments in securities, investments in partnerships, and mortgage loans. The Company maintains its cash and cash equivalents with various financial institutions. Accounts at the financial institution are insured by the Federal Deposit Insurance Corporation up to $ 250,000 . The Company is potentially subject to concentration of credit risk in its investment securities. Currently, all of its investment securities, which include common stocks, preferred stock, corporate bonds and mutual funds, are held at Wells Fargo Advisors. Wells Fargo Advisors is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects clients against the custodial risk of a member investment firm becoming insolvent by replacing missing securities and cash up to $500,000, including up to $250,000 in cash, per client in accordance with SIPC rules. The Company makes loans that are secured by first mortgage liens on real property located primarily in Connecticut (approximately 41.13 %), Florida (approximately 26.79 %) and New York (approximately 12.55 %). This concentration of credit risk may be affected by changes in economic or other conditions of the particular geographic area. Credit risks associated with the Company’s mortgage loan portfolio and related interest receivable are described in Note 4 - Mortgages Receivable. 23 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 14. Outstanding Warrants In connection with a public offering that was consummated in October 2017, the Company issued to the underwriters warrants to purchase an aggregate of 187,500 common shares at an exercise price of $ 5.00 per share. In January 2022, warrants to purchase 93,750 of the Company’s common shares were exercised. The holders of those warrants elected to use the cashless exercise option available to them under the terms of the warrants. As such, they received 19,658 common shares. All the remaining unexercised warrants expired on October 24, 2022. ​ 15. Stock-Based Compensation and Employee Benefits Stock-Based Compensation On October 27, 2016, the Company adopted the 2016 Equity Compensation Plan (the “Plan”), the purpose of which is to align the interests of the Company’s officers, other employees, advisors and consultants or any subsidiary, if any, with those of the Company’s shareholders and to afford an incentive to such officers, employees, consultants and advisors to continue as such, to increase their efforts on the Company’s behalf and to promote the success of the Company’s business. The Plan is administered by the Compensation Committee. The maximum number of common shares reserved for the grant of awards under the Plan is 1,500,000 , subject to adjustment as provided in Section 5 of the Plan. The number of securities remaining available for future issuance under the Plan as of March 31, 2023 was 1,005,078 . During the three months ended March 31, 2023 and 2022, the Company granted an aggregate of 183,390 and 33,500 restricted common shares under the Plan, respectively with a fair value of $ 709,719 and $ 183,915 , respectively. With respect to the restricted common shares granted during the three months ended March 31, 2023, (i) an aggregate of 17,500 shares vested immediately on the date of grant, an additional aggregate of 17,500 shares will vest on each of the first and second anniversaries of the date of grant and (ii) 43,630 shares will vest on January 1, 2024, and an additional 43,630 shares will vest on January 1, 2025 and 2026, respectively. Stock based compensation for the three months ended March 31, 2023 and 2022 was $ 173,132 and $ 106,879 , respectively. As of March 31, 2023, there was unrecorded stock-based compensation expense of $ 1,384,043 . Employee Benefits On April 16, 2018, the Company’s Board of Directors approved the adoption of the Sachem Capital Corp. 401(k) Profit Sharing Plan (the “401(k) Plan”). All employees, who meet the participation criteria, are eligible to participate in the 401(k) Plan. Under the terms of the 401(k) Plan, the Company is obligated to contribute 3 % of a participant’s compensation to the 401(k) Plan on behalf of an employee-participant. For the three months ended March 31, 2023 and 2022, the 401(k) Plan expense was $ 44,696 and $ 19,993 , respectively. ​ 16. Equity Offerings On August 24, 2022, the Company filed a prospectus supplement to its Form S-3 Registration Statement covering the sale of up to $ 75,000,000 of its common shares and its Series A Preferred Stock (as defined in Note 19 below) with an aggregate liquidation preference of up to $ 25,000,000 in an “at-the market” offering, which is ongoing. During the three months ended March 31, 2023, under this offering, the Company sold an aggregate of 2,479,798 common shares, realizing gross proceeds of approximately $ 9.4 million and sold shares of its Series A Preferred Stock having an aggregate liquidation preference of $ 154,675 , realizing gross proceeds of $ 139,500 representing a discount of approximately 10% from the liquidation preference. ​ 17. Partnership Investments As of March 31, 2023, the Company had invested an aggregate of approximately $ 35.3 million in four limited liability companies managed by a commercial real estate finance company that provides debt capital solutions to local and regional commercial real estate owners in the Northeastern United States. The Company’s ownership interest in the four limited liability 24 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 companies ranges up to 49 %. The Company accounts for these investments at cost because the Company does not control or have significant influence over the investments. The Company’s withdrawal from each limited liability company may only be granted by the manager of such entity. Each limited liability company has elected to be treated as a partnership for income tax purposes. The Company’s partnership investments can be categorized into two fund structures, fund investments and direct loan investments. The fund investments primarily include investments in two funds that invest in mortgage loans to borrowers. The direct loan investments are through two partnerships whereby the Company directly invests in the participation of individual loans to borrowers. Both the fund and direct loan structure primarily invest in mortgage loans to borrowers with a majority of the deals being leveraged by a bank. These loans are primarily two to three year collateralized mortgage loans, often with contractual extension options for the borrowers of an additional year. The Company receives quarterly dividends from the partnerships that are composed of a preferred return, return of capital and promote depending on each loans waterfall calculation, as defined by the loan agreements. The Company cannot redeem its fund investment at any time, its investment will be repaid as the underlying loans are repaid. The Company expects to be repaid on its current investments by December 31, 2026. For the three months ended March 31, 2023 and 2022, the partnerships generated $ 549,723 and $ 272,488 , respectively, of income for the Company. At March 31, 2023, the Company had unfunded partnership commitments totaling approximately $ 573,000 . ​ 18. Special Purpose Acquisition Corporation ​ On March 24, 2021, the Company loaned $ 25,000 to its wholly-owned subsidiary, Sachem Sponsor LLC. Sachem Sponsor LLC used those funds to purchase 1,437,500 shares of Class B common stock of Sachem Acquisition Corp., a newly organized blank check company formed under the laws of Maryland in February 2021, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. As of March 31, 2023, the Company had incurred approximately $ 452,000 of costs related to the preparation and filing of the registration statement, including legal fees, accounting fees and filing fees as well as organizational costs and an expense advance to the underwriter. On July 14, 2021, Sachem Acquisition Corp. filed a registration statement on Form S-1 registering the sale of 5,750,000 units at $ 10.00 per unit, or $ 57,500,000 in the aggregate. Each unit consists of one share of Class A common stock and one -half of a warrant to purchase one share of Class A common stock. ​ 19. Series A Preferred Stock The Company has designated 2,903,000 shares of its authorized preferred shares, par value $ 0.001 per share, as shares of Series A Preferred Stock (the “Series A Preferred Stock”) with the powers, designations, preferences and other rights as set forth in an Amended and Restated Certificate of Designation (the “Series A Designation Certificate”). The Series A Designation Certificate provides that the Company will pay quarterly cumulative dividends on the Series A Preferred Stock, in arrears, on the 30th day of each of March, June, September and December, and including, the date of original issuance of the Series A Preferred Stock until redeemed at 7.75 % of the $ 25.00 per share liquidation preference per annum (equivalent to $ 1.9375 per annum per share). The Series A Preferred Stock is not redeemable before June 29, 2026, except upon the occurrence of a Change of Control (as defined in the Series A Designation Certificate). On or after June 29, 2026, the Company may, at its option, redeem any or all of the shares of the Series A Preferred Stock at $ 25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date. Upon the occurrence of a Change of Control, the Company may, at its option, redeem any or all of the shares of Series A Preferred Stock within 120 days after the first date on which such Change of Control occurred at $ 25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date. The Series A Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless repurchased or redeemed by the Company or converted into common shares in connection with a Change of Control by the holders of the Series A Preferred Stock. Upon the occurrence of a Change of Control, each holder of Series A Preferred Stock will have the right (subject to the Company’s election to redeem the Series A Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date as defined in the Series A Designation Certificate) to convert some or all of the Series A Preferred Stock held by such holder on the Change of Control Conversion Date into a number of the common shares determined by formula, in each case, on the terms and subject to the conditions described in the Series A Designation Certificate, including provisions for the receipt, under specified circumstances, of alternative 25 Table of Contents SACHEM CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2023 consideration as described in the Series A Designation Certificate. Except under limited circumstances, holders of the Series A Preferred Stock generally do not have any voting rights. The Company has reserved 72,575,000 common shares for issuance upon conversion of the Series A Preferred Stock. ​ 20. Subsequent Events From April 1, 2023 through May 12, 2023, the Company sold an aggregate of 136,356 common shares under its at-the-market offering facility, realizing gross proceeds of approximately $ 510,000 . On April 4, 2023, the Company’s Board of Directors declared a dividend of $ 0.13 per share payable to shareholders of record as of April 17, 2023. The dividend was paid April 24, 2023. Management has evaluated subsequent events through May 12, 2023 the date on which the financial statements were available to be issued. Based on the evaluation, no adjustments were required in the accompanying financial statements. ​ ​ ​ 26 Table of Contents