What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 92 added, 61 removed, 192 unchanged (44% of the section changed)

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As a REIT, we may also be subject to federal excise taxes and state taxes.

Review of the First Quarter and Outlook for Balance of Year

Compared to the first quarter of 2022, revenue increased 42.8%, net income attributable to common shareholders increased 22.3%, and earnings per share remained unchanged at $0.10 per share.

The revenue increase was directly related to the growth in our lending activities, reflected in our interest income which had an increase of 29.0% and our income from partnership investments that had an increase of 101.7%.

We also recorded an unrealized gain of approximately $716,000 on investment securities in the first quarter of 2023 compared to a loss of $1.1 million in the first quarter of 2022, reflecting a $1.8 million increase in the value of those securities.

The increase in revenue was partly offset by a 61.1% increase in operating costs and expenses.

Review of the First Half of 2023 and Outlook for Balance of Year

Compared to the first half of 2022, revenue increased 36.4%, net income attributable to common shareholders increased 15.9%, while earnings per share decreased $0.01 per share or 4.6%.

The revenue increase was directly related to the growth in our lending activities, reflected in our interest income which had an increase of 20.8%, which resulted from a more favorable rate environment in comparison to the first half of 2022, and our income from partnership investments that had an increase of 164.0%.

We also recorded an unrealized gain of approximately $0.6 million on investment securities in the first half of 2023 compared to a loss of $2.5 million in the first half of 2022, reflecting a $3.1 million increase in the value of those securities.

The increase in revenue was partially offset by a 53.3% increase in operating costs and expenses.

The increase in operating expenses is mainly attributable to a 53.8% increase in interest and amortization of deferred financing costs and an 53.2% increase in compensation and related expenses.

The increase in compensation expense is mainly attributable to the addition of a Chief Financial Officer in August 2022 as well as additional staff positions that are part of our long-term growth strategy.

Mortgages receivable increased by 34.7% compared to the same prior year period, while cash and cash equivalents decreased 64.9%.

The increase in mortgages receivable was primarily due to increase in lending.

The increase in compensation expense is mainly attributable to the hiring of our former Chief Financial Officer in August of 2022 (see Note 12 in the accompanying consolidated financial statements), and to the hiring of additional employees from our acquisition of Urbane Capital LLC in October of 2022.

Mortgages receivable increased by approximately $84.2 million compared to the same prior year period, while cash and cash equivalents decreased by 48.1%.

The increase in mortgages receivable was primarily due to an increase in lending.

Our primary business objective for 2023 remains to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term principally through dividends.

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

We expect 2023 to be a challenging year due to the following factors:

Interest rate compression.

For the three months ended March 2023 and 2022, the yield on our mortgage loan portfolio, inclusive of default interest, was 11.69% and 11.30%, respectively.

(For this purpose, yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable.) We believe the interest rate compression will continue to be a factor in 2023, particularly as the Federal Reserve Board continues to increase interest rates, thereby increasing our cost of capital.

To date, 2023 has been a challenging year and we expect it to continue to be one due to the following factors:

Rising interest rates and interest rate compression.

The rates on our existing credit facilities, including the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage (refinanced in February 2023) (as defined below), have all increased.

In addition, the interest rate on the September 2027 Notes, our last note offering in 2022, was 8%, the highest its ever been.

Overall, our weighted average cost of capital as of March 31, 2023 was 7.23% compared to 6.08% as of March 31, 2022.

In addition, the interest rate on the September 2027 Notes, our last note offering in 2022, was 8%, the highest it has ever been.

Overall, our weighted average cost of capital, excluding amortization of deferred financing costs, as of June 30, 2023 was 7.25% compared to 6.22% as of June 30, 2022.

On the other hand, the yield on our portfolio has not matched the growth in our cost of capital.

For the six months ended June 30, 2023, and 2022, the yield on our mortgage loan portfolio, inclusive of default interest, was 12.17% and 11.30%, respectively.

Geopolitical concerns.

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Increased competition.

In the past, our primary competitors were other non-bank real estate finance companies (like Sachem Capital Corp.) and banks and other financial institutions.

In the past, our primary competitors were other non-bank real estate finance companies and banks and other financial institutions.

More recently, we are encountering competition from private equity funds, hedge funds and other specialty finance entities funded by investment banks, asset managers, private equity funds and hedge funds.

Clearly, the primary driver for these new market participants is the need to generate yield.

They are well-funded and aggressive in terms of pricing.

The primary driver for these new market participants, we believe, is their need to find higher yielding investments.

These entities, in general, are well-funded, have relatively easy access to capital and are aggressive in terms of pricing.

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

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Increased operating expenses.

Our operating expenses for the three months ended March 31, 2023 are significantly higher than they were in 2022 due to our higher debt load.

Our operating expenses for the three and six months ended June 30, 2023 are significantly higher than they were in 2022 due to our higher debt load, as well as higher borrowing rates.

In addition, we expect that our aggregate dividend payments will be higher in 2023 than in 2022 due to an increase in the number of our common shares (“Common Shares”) outstanding as well as the full year effect of our Series A Preferred Stock (“Series A Preferred Stock”), which carries a 7.75% annual dividend rate.

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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 March 31, 2023, our mortgage loan portfolio included 171 loans with future funding obligations, in the aggregate principal amount of $114.9 million, compared to 204 loans in the aggregate principal amount of $115.4 million at March 31, 2022.

At June 30, 2023, our mortgage loan portfolio included 160 loans with future funding obligations, in the aggregate principal amount of $110.3 million, compared 191 loans with future funding obligations, in the aggregate principal amount of approximately $119.1 million at June 30, 2022.

Advances under construction 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.

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

Despite these challenges we continue to believe in the viability of our business model.

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Although we have no pre-set guidelines in terms of leverage ratio, the amount of leverage we will deploy will depend on our assessment of a variety of factors, which may include the liquidity of the real estate market in which most of our collateral is located, employment rates, general economic conditions, the cost of funds relative to the yield curve, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, our opinion regarding the creditworthiness of our borrowers, the value of the collateral underlying our portfolio, and our outlook for interest rates and property values.

At March 31, 2023, debt represented approximately 59.9% of our total capital compared to 55.5% at March 31, 2022.

At June 30, 2023, debt represented approximately 61.3% of our total capital compared to 59.3% at June 30, 2022.

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

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

As of March 31, 2023, we had seven series of unsecured unsubordinated notes outstanding, having an aggregate outstanding principal balance of $288.4 million (collectively, the “Notes”) all of which rank equally in right of payment with all of our existing and future senior unsecured and unsubordinated indebtedness and are effectively subordinated in right of payment to all existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant a security interest) and structurally subordinated to all existing and future indebtedness of our subsidiaries.

As of June 30, 2023, we had seven series of unsecured unsubordinated notes outstanding, having an aggregate outstanding principal balance of $288.4 million (collectively, the “Notes”) all of which rank equally in right of payment with all of our existing and future senior unsecured and unsubordinated indebtedness and are effectively subordinated in right of payment to all existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant a security interest) and structurally subordinated to all existing and future indebtedness of our subsidiaries.

Interest on each series of notes is payable quarterly in arrears on each March 30, June 30, September 30 and December 30 of each year they are outstanding and, except as noted below, each series can be prepaid beginning on the second anniversary of its date of issuance.

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

At March 31, 2023, the amount outstanding under the Churchill Facility was approximately $54.1 million, which amount was accruing interest of an effective rate of 9.09% per annum.

At June 30, 2023, the amount outstanding under the Churchill Facility was approximately $50.5 million, which amount was accruing interest at the rate of 9.31% 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 $13.7 million at March 31, 2023.

The Wells Fargo Loan is secured by our portfolio of short-term securities, had a balance of approximately $25.9 million at June 30, 2023.

The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate.

At March 31, 2023 the prime rate was 8.0% and the interest rate on the Wells Fargo Loan was, thus, 6.25%.

At June 30, 2023 the prime rate was 8.25% and the interest rate on the Wells Fargo Loan was, thus, 6.50%.

As of July 27, 2023, the prime rate is 8.5% and the rate on the Wells Fargo Loan is 6.75%.

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 as of December 31, 2022.

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and (C) an asset coverage ratio of at least 150%.

As of March 31, 2023, we have not yet drawn on the Needham Credit Facility.

As of June 30, 2023, the interest rate on the Needham Credit Facility was 8.0% and as of July 27, 2023, interest is accruing at the rate of 8.25% per annum.

On May 30, 2023, in connection with our investment in Shem Creek Sachem 100 LLC (see Note 9 to the accompanying consolidated financial statements), we obtained a commercial loan from PeoplesBank of $7,000,000.

At closing we had an outstanding principal balance of $6,224,000 with the ability to draw an additional $776,000 so long as there are no existing events of default under the loan agreement.

The loan accrues interest at an annual fixed rate of 6.50%.

The loan has an original maturity date of June 20, 2026 and a one year extension option that defers the maturity date until June 20, 2027.

During the first 36 payment periods, only interest is due and payable, after which principal must be repaid for the remainder of the loan term under a thirty (30) year amortization schedule.

The PeoplesBank loan is non-recourse, secured by a first lien on the Shem Creek Middlesex mortgage receivable.

Finally, from time-to-time we raise capital by selling our Common Shares in various at-the market offerings.

During the three months ended March 31, 2023, under our at-the-market offering facility (see Note 16 to the consolidated financial statements), we sold

an aggregate of 2,479,798 Common Shares, realizing gross proceeds of approximately $9.4 million and we sold shares of 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.

As of the date of this Report, we have approximately $61.4 million of availability remaining for sale through one of these offerings.

During the six months ended June 30, 2023, under our at-the-market offering facility (see Note 17 to the accompanying consolidated financial statements), we sold an aggregate of 2,616,124 Common Shares, realizing gross proceeds of approximately $9.9 million and we sold shares of Series A Preferred Stock having an aggregate liquidation preference of $615,075, realizing gross proceeds of $527,600 representing a discount of approximately 16.6% from the liquidation preference.

At June 30, 2023, approximately $61.4 million of Common Shares and $24.5 million of Series A Preferred Stock were available for future sale under the ongoing at-the-market offering.

REIT Qualification

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Results of Operations

Three months ended March 31, 2023 compared to three months ended March 31, 2022

Three months ended June 30, 2023 compared to three months ended June 30, 2022

Total revenue

Total revenue for the three months ended March 31, 2023 was approximately $14.7 million compared to approximately $10.3 million for the three months ended March 31, 2022, an increase of approximately $4.4 million, or 42.8%.

The increase in revenue is primarily attributable to an increase in our lending operations.

Total revenue for the three months ended June 30, 2023 was approximately $16.5 million compared to approximately $12.5 million for the three months ended June 30, 2022, an increase of approximately $4.0 million, or 31.2%.

The increase in revenue is primarily attributable to an increase in our lending operations as well as to the increase in the interest rates that we are able to charge borrowers in comparison to the three months ended June 30, 2022.

For the 2023 period, interest income was approximately $11.9 million compared to approximately $10.4 million for the 2022 period, an increase of approximately $1.5 million or 14.0%.

Income from partnership investments was approximately $550,000 for the 2023 period compared to approximately $272,000 for the 2022 period, an increase of approximately $277,000 or 101.7%.

Other income was approximately $708,000 for the 2023 period compared to approximately $609,000 for the 2022 period, an increase of approximately $99,000 or 16.3%.

In addition, unrealized gains on investment securities for the 2023 period were approximately $716,000 compared to an unrealized loss of approximately $1.1 million on investment securities in the 2022 period.

The increases were partially offset by a decrease in origination and modification fees of approximately $368,000, or 20% in the 2023 period, from approximately $1.8 million in the 2022 period to approximately $1.5 million in the 2023 period.

Income from partnership investments was approximately $1.0 million for the 2023 period compared to approximately $0.3 million for the 2022 period, an increase of approximately $0.7 million or 217.5%.

Fee and other income was approximately $1.6 million for the 2023 period compared to approximately $0.8 million for the 2022 period, an increase of approximately $0.8 million or 96.7%.

In addition, unrealized loss on investment securities for the 2023 period was approximately $0.1 million compared to approximately $1.5 million for the 2022 period.

The increase in revenue was partially offset by a decrease in origination and modification fees of approximately $0.4 million, or 21.5% in the 2023 period, from approximately $2.2 million in the 2022 period to approximately $1.8 million in the 2023 period.

Operating costs and expenses

Total operating costs and expenses for three months ended March 31, 2023 were approximately $9.6 million compared to approximately $5.9 million for the three months ended March 31, 2022, an increase of approximately $3.6 million or 61.1%.

The increase in operating costs and expenses is primarily attributable to the increase in our unsecured bond debt while growing our lending operations.

Total operating costs and expenses for three months ended June 30, 2023 were approximately $10.8 million compared to approximately $7.3 million for the three months ended June 30, 2022, an increase of approximately $3.5 million or 47.0%.

The increase in operating costs and expenses is primarily attributable to the increase in our borrowing costs that were utilized to grow our lending operations.

In the 2023 period, interest and amortization of deferred financing costs were approximately $7.1 million compared to approximately $5.2 million in the same 2022 period, an increase of approximately $1.9 million or 37.0%.

The remaining fluctuations in operating expenses were primarily attributable to (i) compensation, fees and taxes which increased approximately $785,000, and (ii) general and administrative expenses which increased approximately $266,000, partially offset by an increase in gain on sale of real estate of approximately $214,000 and a decrease in impairment loss of approximately $156,000.

The remaining fluctuations in operating expenses were primarily attributable to (i) compensation, fees and taxes which increased approximately $0.4 million, and (ii) general and administrative expenses which increased approximately $0.7 million.

Comprehensive income

For the quarter ended March 31, 2023, we reported an unrealized gain on investment securities of approximately $92,000 reflecting the decrease in prior unrealized losses since December 31, 2022.

For the quarter ended March 31, 2022, we reported an unrealized gain on investment securities of approximately $243,000 reflecting the decrease in prior unrealized losses since December 31, 2021.

Net income attributable to common shareholders for the three months ended March 31, 2023 was approximately $4.2 million, or $0.10 per share, compared to approximately $3.4 million, or $0.10 per share for the three months ended March 31, 2022.

For the quarter ended June 30, 2023, we reported an unrealized gain on investment securities of approximately $0.1 million reflecting the decrease in prior unrealized losses since March 31, 2023.

For the quarter ended June 30, 2022, we reported an unrealized loss on investment securities of approximately $0.2 million reflecting the decrease in the market value of certain securities since March 31, 2022.

Net income attributable to common shareholders for the three months ended June 30, 2023 was approximately $4.8 million, or $0.11 per share, compared to approximately $4.3 million, or $0.12 per share for the three months ended June 30, 2022.

Six months ended June 30, 2023 compared to six months ended June 30, 2022

Total revenue

Total revenue for the six months ended June 30, 2023 was approximately $31.2 million compared to approximately $22.8 million for the six months ended June 30, 2022, an increase of approximately $8.4 million, or 36.4%.

The increase in revenue is primarily attributable to the growth in our lending operations, as well as to the increase in the interest rates that we are able to charge borrowers compared to the six months ended June 30, 2022.

For the 2023 period, interest income was approximately $22.9 million compared to approximately $18.9 million for the 2022 period, representing an increase of approximately $4.0 million or 20.8%.

Origination and modification fees decreased to approximately $3.2 million for the 2023 period compared to approximately $4.1 million for the 2022 period, a decrease of approximately $0.9 million, or 20.8%.

Income from partnership investments increased to approximately $1.6 for the 2023 period compared to approximately $0.6 million for the 2022 period, an increase of approximately $1.0 million or 164.0%.

Fee and other income was approximately $2.3 million for the 2023 period compared to approximately $1.4 million for the 2022 period, an increase of approximately $0.9 million or 61.9%.

For the six months ended June 30, 2023, unrealized

gain on investment securities was $0.6 million, an increase of $3.1 million compared to revenue being offset by an unrealized loss of approximately $2.5 million for the six months ended June 30, 2022.

Operating costs and expenses

Total operating costs and expenses for six months ended June 30, 2023 were approximately $20.3 million compared to approximately $13.3 million for the six months ended June 30, 2022, an increase of approximately $7.0 million, or 53.3%.

The increase in operating costs and expenses is primarily attributable to the increase in our unsecured bond debt while growing our lending operations and for the reasons discussed herein.

In the 2023 period, interest and amortization of deferred financing costs was approximately $14.0 million compared to approximately $9.1 million in the same 2022 period, an increase of $4.9 million, or 53.8%.

The balance of the increase in operating expenses was attributable to (i) compensation, fees and taxes which increased approximately $1.2 million, or 53.2%, (ii) general and administrative expenses which increased approximately $0.9 million, or 73.4%, (iii) provision for credit losses which increased approximately $0.1 million or 87.1% and (iv) partially offset by impairment loss which decreased approximately $0.1 million, or 15.9%.

Comprehensive income

For the six months ended June 30, 2023, we reported an unrealized gain on investment securities of approximately $0.2 million reflecting the increase in the market value of such securities since December 31, 2022.

For the six months ended June 30, 2022, we reported an unrealized gain on investment securities of approximately $0.1 million reflecting the increase in the market value of such securities since December 31, 2021.

Net income attributable to common shareholders for the six months ended June 30, 2023 was approximately $9.0 million, or $0.21 per share, compared to $7.7 million, or $0.22 per share for the six months ended June 30, 2022.

Non-GAAP Metrics – Adjusted Earnings

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Under GAAP, those securities are required to be “marked to market” at the end of each reporting period.

Accordingly, if the value of certain of those securities increases, the increase is reported as revenue, as has been the case in the first quarter of 2023 and the increase in the other securities is reported as a change in accumulated other comprehensive income.

Accordingly, if the value of certain of those securities increases, the increase is reported as revenue, and the increase in the other securities is reported as a change in accumulated other comprehensive income.

On the other hand, if the value decreases, the decrease in value of certain of the securities reduces our revenues.

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In addition, there may be other differences between GAAP and tax accounting that would impact Adjusted Earnings, which are not reflected in the table below.

For the Period Ended March 31,

For the Three Month

For the Six Month

Period Ended June 30,

Adjusted Earnings:

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Adjusted earnings attributable to common shareholders

For the three months ended March 31, 2023 and 2022, Adjusted Earnings per share was $0.08 and $0.13, respectively.

For the three months ended June 30, 2023 and 2022 adjusted earnings per share was $0.11 and $0.16, respectively.

For the six months ended June 30, 2023 and 2022 adjusted earnings per share was $0.19 and $0.29, respectively.

Liquidity and Capital Resources

Total assets at March 31, 2023 were approximately $597.0 million compared to approximately $565.7 million at December 31, 2022, an increase of approximately $31.3 million, or 5.5%.

The increase was due primarily to the increase of our mortgage loan portfolio of approximately $15.8 million, an increase in investments in partnerships of approximately $4.5 million and an increase in investment securities of approximately $11.3 million, offset in part by a decrease in cash and cash equivalents of approximately $3.4 million.

Total liabilities at March 31, 2023 were approximately $368.0 million compared to approximately $348.0 million at December 31, 2022, an increase of approximately $20.0 million, or 5.8%.

Total assets at June 30, 2023 were approximately $624.0 million compared to approximately $565.7 million at December 31, 2022, an increase of approximately $58.3 million, or 10.3%.

The increase was due primarily to the increase of our mortgage loan portfolio of approximately $46.0 million, an increase in investments in partnerships of approximately $4.6 million and an increase in investment securities of approximately $12.6 million, partially offset by a decrease in cash and cash equivalents of approximately $8.6 million.

Total liabilities at June 30, 2023 were approximately $395.0 million compared to approximately $348.0 million at December 31, 2022, an increase of approximately $47.0 million, or 13.5%.

This increase is principally due to increases in the repurchase facility of approximately $8.0 million and the line of credit of approximately $32.3 million, offset primarily by a decrease in accrued dividends payable of approximately $5.3 million.

Total shareholders’ equity at March 31, 2023 was approximately $229.0 million compared to approximately $217.7 million at December 31, 2022, an increase of approximately $11.3 million, or 5.2%.

This increase was due primarily to net proceeds of $9.2 million from the sale of Common Shares and our net income of approximately $5.1 million, offset by dividends paid on our Series A Preferred Stock of approximately $0.9 million and a cumulative credit loss adjustment resulting from the adoption of ASU 2016-13 on January 1, 2023 of approximately $2.5 million.

Net cash provided by operating activities for the three months ended March 31, 2023 was approximately $5.0 million compared to approximately $7.6 million for the comparable 2022 period.

For the 2023 period net cash provided by operating activities consisted primarily of net income of approximately $5.1 million, amortization of deferred financing costs and bond discount of approximately $600,000 and increases in deferred revenue of approximately $321,000 and advances from borrowers of approximately $1.4 million, offset by gain on the sale of real estate of approximately $148,000, unrealized gain on investment securities of approximately $716,000, gain on the sale of investment securities of approximately $276,000 and increases in due from borrowers of approximately $783,000, other assets of approximately $500,000, and interest and fees receivable of approximately $366,000.

For the 2022 period net cash provided by operating activities consisted primarily of net income of approximately $4.4 million, amortization of deferred financing costs and bond discount of approximately $469,000, an impairment loss of approximately $261,000, a loss on the sale of marketable securities of approximately $154,000, unrealized loss on investment securities of approximately $1.1 million, and increases in advances from borrowers of approximately $1.6 million, deferred revenue of $233,000 and accrued interest of $122,000, offset by increases in interest and fees receivable of approximately $396,000, other receivables of approximately $211,000 and due from borrowers of approximately $292,000.

Net cash used for investing activities for the three months ended March 31, 2023 was approximately $34.0 million compared to approximately $48.4 million for the comparable 2022 period.

For the 2023 period, net cash used for investing activities consisted primarily of purchases of investment securities of approximately $14.0 million, net purchases of interests in investment partnerships of approximately $4.5 million, purchase of property and equipment of approximately $711,000 and principal disbursements for mortgages receivable of approximately $58.9 million, offset by principal collections on mortgages receivable of approximately $39.9 million, proceeds from sale of real estate owned of approximately $515,000 and by proceeds from the sale of investment securities of approximately $3.8 million.

For the 2022 period, net cash used for investing activities consisted primarily of purchases of investment securities of approximately $27.5 million, purchases of interests in investment partnerships of approximately $11.4 million and principal disbursements for mortgages receivable of approximately $88.7 million, offset by principal collections on mortgages receivable of approximately $27.1 million, proceeds from the sale of investment securities of approximately $51.7 million and proceeds from the sale of real estate owned of $623,000.

Net cash provided by financing activities for the three months ended March 31, 2023 was approximately $25.6 million compared to approximately $56.8 million for the comparable 2022 period.

Net cash provided by financing activities for the 2023 period consists principally of net proceeds from the issuance of Common Shares of approximately $9.2 million, net proceeds from line of credit of approximately $10.1 million, net proceeds from repurchase facility of approximately $11.5 million and proceeds from mortgage of $910,000, offset primarily by dividends paid on common stock of approximately $5.3 million and preferred stock of approximately $925,000.

Net cash provided by financing activities for the 2022 period consists principally of net proceeds from the issuance of fixed rate notes of $48.2 million, net proceeds from the issuance of Common Shares of approximately $15.5 million and net proceeds from repurchase facility of approximately $7.9 million, offset by repayment of line of credit of approximately $9.9 million, dividends paid on Common Shares of approximately $3.9 million and dividends paid on preferred stock of approximately $922,000.

Total shareholders’ equity at June 30, 2023 was approximately $229.0 million compared to approximately $217.7 million at December 31, 2022, an increase of approximately $11.3 million, or 5.2%.

This increase was due primarily to net proceeds of $9.7 million from the sale of Common Shares and our net income of approximately $10.8 million, offset by dividends paid on our Series A Preferred Stock and Common Shares of approximately $1.8 million and $5.7 million, respectively, and a cumulative credit loss adjustment resulting from the adoption of ASU 2016-13 on January 1, 2023 of approximately $2.5 million.

Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $12.1 million compared to approximately $7.3 million for the comparable 2022 period.

For the 2023 period net cash provided by operating activities consisted primarily of net income of approximately $10.8 million, amortization of deferred financing costs and bond discount of approximately $1.2 million, stock based compensation of approximately $0.4 million, impairment loss of approximately $0.4 million, increases in deferred revenue of approximately $0.5 million and advances from borrowers of approximately $2.7 million, offset by unrealized gain on investment securities of approximately $0.6 million, increase in due from borrowers of approximately $1.5 million, increase in other assets in aggregate of approximately $0.7 million, and an increase interest and fees receivable of approximately $1.5 million.

For the 2022 period net cash provided by operating activities for the six months ended June 30, 2022 was approximately $7.3 million, which consisted primarily of net income of approximately $9.6 million, amortization of deferred financing costs and bond discount of $1.1 million and unrealized loss on investment securities of approximately $2.5 million offset by increases in interest and fees receivable of $1.6 million, due from borrowers of $1.1 million and decreases in advances from borrowers of approximately $3.7 million

Net cash used for investing activities for the six months ended June 30, 2023 was approximately $65.2 million compared to approximately $120.6 million for the comparable 2022 period.

For the 2023 period, net cash used for investing activities consisted primarily of purchases of investment securities of approximately $18.3 million, net purchases of interests in investment partnerships of approximately $4.6 million, purchase of property and equipment of approximately $0.7 million and principal disbursements for mortgages receivable of approximately $114.5 million, offset by principal collections on mortgages receivable of approximately $66.4 million, proceeds from sale of real estate owned of approximately $0.2 million and by proceeds from the sale of investment securities of approximately $6.5 million.

For the 2022 period, net cash used for investing activities for the six months ended June 30, 2022 was approximately $120.6.

For the 2022 period, net cash used for investing activities consisted primarily of purchases of investment securities of approximately $36.1 million, purchases of interests in investment partnerships of approximately $13.6 million and principal disbursements for mortgages receivable of approximately $192.0 million, offset by principal collections on mortgages receivable of approximately $60.9 million, proceeds from the sale of investment securities $59.7 million and proceeds from the sale of real estate owned of $1.4 million

Net cash provided by financing activities for the six months ended June 30, 2023 was approximately $44.5 million compared to approximately $100.4 million for the comparable 2022 period.

Net cash provided by financing activities for the 2023 period consists principally of net proceeds from the issuance of Common Shares of approximately $9.7 million, net proceeds from the issuance of Preferred Shares of approximately $0.5 million, net proceeds from line of credit of approximately $32.3 million, net proceeds from repurchase facility of approximately $8.0 million, proceeds from mortgage of $0.9 million and proceeds from issuance of secured note of $6.2 million, offset primarily by dividends paid on common stock of approximately $11.0 million and preferred stock of approximately $1.8 million.

Net cash provided by financing activities for the 2022 period consists principally of net proceeds from the issuance of fixed rate notes of $78.8 million, net proceeds from the issuance of common shares of approximately $21.2 million and net proceeds from repurchase facility of approximately $20.3 million, offset primarily by repayment of the line of credit of approximately $9.8 million, dividends paid on common shares of approximately $8.3 million and dividends paid on preferred stock of approximately $1.8 million.

We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs.

5 unchanged sentences

Subsequent Events

Management has evaluated subsequent events through May 12, 2023 the date on which the financial statements were available to be issued.

Management has evaluated subsequent events through August 11, 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.

2 unchanged sentences

Contractual Obligations

As of March 31, 2023, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment, software licenses and investment in partnerships.

As of June 30, 2023, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment, software licenses and investment in partnerships.

Investment in partnerships

6 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis