Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Principal Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024 (the “Evaluation Date”).
Based on this evaluation, our Principal Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date. This conclusion was based on the identification of a material weakness in our internal control over financial reporting related to stock-based compensation, as described in Management’s Report on Internal Control over Financial Reporting below.
Specifically, the material weakness resulted from deficiencies in the design and operation of controls surrounding the authorization and accounting for equity awards, which could impact the reliability of financial reporting and the accuracy of disclosures included in our periodic SEC filings.
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Management has initiated remediation efforts, including strengthening review procedures and implementing enhanced oversight of equity award approvals, which are ongoing as of the date of this Report.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of John L. Villano and Jeffery C. Walraven, our Principal Executive Officer and Principal Accounting Officer, respectively, and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is supported by written policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of management and the Board; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our internal control system was designed to provide reasonable assurances to our management and the Board regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations which may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO (the “COSO Framework”). The COSO Framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.
Based on this evaluation, management identified a material weakness in our internal control over financial reporting relating to stock-based compensation. Specifically, the Compensation Committee authorized a grant of restricted stock to an executive that exceeded the individual award limit prescribed by the Company’s 2016 Equity Compensation Plan. Although the executive voluntarily forfeited the over-authorized shares upon discovery, management concluded that this deficiency demonstrated a failure in the design and operation of controls to ensure compliance with plan-based limits on equity compensation. Additionally, controls were not designed or operating effectively to ensure that the amount of stock-based compensation expense recorded was appropriately calculated. As a result, these control deficiencies could have resulted in a material misstatement in our financial statements that would not be prevented or detected on a timely basis.
Accordingly, management has concluded that our internal control over financial reporting was not effective as of December 31, 2024.
Management has initiated steps to remediate the material weakness, including strengthening procedures around the review and authorization of equity awards and implementing enhanced oversight to ensure compliance with the terms of the 2016 Equity Compensation Plan. These efforts are ongoing as of the date of this report.
This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report.
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Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Amendment of Bylaws
On March 25, 2025, the Board adopted and approved the Amended and Restated Bylaws of the Company (the “Amended and Restated Bylaws”), effective as of such date. The Amended and Restated Bylaws, among other things:
● Adopt advance notice requirements for shareholders submitting a director nomination or shareholder proposal pursuant to the Amended and Restated Bylaws, including requiring certain information about such nomination or proposal and the nominating or proposing shareholder;
● Require shareholders seeking to take action by written consent in lieu of a shareholder meeting to request that the Board fix a record date for the purpose of determining the shareholders entitled to take such action;
● Specify the powers of the chair of a shareholder meeting to regulate conduct at such meeting and to adjourn the meeting;
● Require director candidates to make themselves available for interviews with members of the Board;
● Provide that special meetings of the Board may be held with less than 24 hours’ notice, if necessary or appropriate under the circumstances;
● Conform certain provisions of the Amended and Restated Bylaws to terms of the New York Business Corporation Law, including as related to quorum requirements, notices of shareholder meetings, and the maintenance of shareholder lists; and
● Make various other updates, including ministerial and conforming changes and the elimination of obsolete provisions.
The foregoing does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Bylaws attached hereto as Exhibit 3.2 and incorporated herein by reference.
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2025 Annual Meeting of Shareholders
The Company plans to hold its 2025 Annual Meeting of Shareholders (the “2025 Annual Meeting”) on July 9, 2025. In accordance with the requirements set forth in the Amended and Restated Bylaws, a shareholder seeking to submit a proposal or to make a nomination for consideration by shareholders at the 2025 Annual Meeting without the inclusion of such proposal or nomination in our proxy materials must comply with the requirements set forth in our Amended and Restated Bylaws, including by delivering a notice of the shareholder’s proposal or nomination to the Secretary at the Company’s principal executive offices at 568 East Main Street, Branford, CT 06405. Such notice must be received by the Secretary at such address no later than April 10, 2025. In addition, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act (including a statement that such shareholder intends to solicit the holders of shares representing at least 67% of the voting power of the Company’s shares entitled to vote on the election of directors in support of director nominees other than the Company’s nominees), which notice must be postmarked or transmitted electronically to the Company at its principal executive offices at 568 East Main Street, Branford, CT 06405 no later than May 12, 2025.
Because the expected date of the 2025 Annual Meeting is more than 30 days from the date of the anniversary of the Company’s 2024 Annual Meeting of Shareholders, we are informing shareholders of this change and the updated deadline for shareholders to submit proposals intended for inclusion in our proxy statement and form of proxy for consideration at the 2025 Annual Meeting in accordance with Rule 14a-8 under the Exchange Act. Accordingly, to be timely, shareholders wishing to submit proposals intended to be considered for inclusion in our proxy and form of proxy statement relating to the 2025 Annual Meeting must ensure that proper notice is received by us at our offices no later than April 10, 2025, which we consider a reasonable time before we will begin printing and sending proxy materials.
(b) Insider Trading Arrangements
N o n e .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
Item 11. Executive Compensation.
The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
1.
Financial Statements — See Index to Financial Statements on page F-1.
2.
Financial Statement Schedules — See (c) below.
3.
Exhibits — See (b) below.
(b)
Certain of the following exhibits were filed as Exhibits to the registration statement on Form S-11 , Registration No. 333-214323 and amendments thereto (the “Registration Statement”) filed by us under the Securities Act and are hereby incorporated by reference.
Exhibit
No.
Description
2.1
Form of Amended and Restated Exchange Agreement(1)
3.1
Certificate of Incorporation(1)
3.1(a)
Certificate of Amendment to Certificate of Incorporation(1)
3.1(b)
Certificate of Amendment to Certificate of Incorporation filed on October 7, 2019(2)
3.1(c)
Certificate of Amendment to Certificate of Incorporation filed on June 25, 2021(9)
3.1(d)
Certificate of Amendment to Certificate of Incorporation filed on July 19, 2022 (19)
3.1(e)
Certificate of Amendment to Certificate of Incorporation filed on August 23, 2022 (20)
3.2
Amended and Restated Bylaws, effective as of March 25. 2025*
4.1
Indenture, dated as of June 21, 2019, between Sachem Capital Corp. and U.S. Bank National Association, as Trustee (4)
4.2
Third Supplemental Indenture between Sachem Capital Corp. and U.S. Bank National Association, as Trustee (6)
4.3
Form of 7.75% Notes due 2025 (included as Exhibit A to Exhibit 4.2 above)
4.4
Specimen 7.75% Series A Cumulative Redeemable Preferred Stock Certificate.(8)
4.5
Fourth Supplemental Indenture between Sachem Capital Corp. and U.S. Bank National Association, as Trustee (9)
4.6
Form of 6.00% Note due 2026 (attached as Exhibit A to Exhibit 4.5 above).
4.7
Fifth Supplemental Indenture between Sachem Capital Corp. and U.S. Bank Trust Company, National Association, as Trustee (13)
4.8
Form of 6.00% Note due 2027 (attached as Exhibit A to Exhibit 4.7 above)
4.9
Sixth Supplemental Indenture between Sachem Capital Corp. and U.S. Bank Trust Company, National Association, as Trustee (15)
4.10
Form of 7.125% Note due 2027 (attached as Exhibit A to Exhibit 4.9 above)
4.11
Seventh Supplemental Indenture between Sachem Capital Corp. and U.S. Bank Trust Company, National Association, as Trustee (20)
4.12
Form of 8.00% Note due 2027 (attached as Exhibit A to Exhibit 4.11 above)
4.13
Revolving Credit Note, dated March 20, 2025, in the principal amount of $50 million in favor of Needham Bank, as lender (27)
10.1**
Employment Agreement by and between John L. Villano and Sachem Capital Corp. (1)
10.2
Sachem Capital Corp. 2016 Equity Compensation Plan(1)
10.3**
Final Form of the Restrictive Stock Grant Agreement dated April 2021 under the Sachem Capital Corp. 2016 Equity Compensation Plan between Sachem Capital Corp. and John L. Villano (10)
10.4
Master Repurchase Agreement and Securities Contract, dated as of July 21, 2021, between Sachem Capital Corp. and Churchill MRA Funding I LLC(11)
10.5
Custodial Agreement, dated as of July 21, 2021, among Sachem Capital Corp., Churchill MRA Funding I LLC. and U.S. Bank National Association(11)
10.6**
Agreement and General Release, dated as of January 14, 2022, between Sachem Capital Corp. and Peter J. Cuozzo (14)
10.7**
Final Form of the Restrictive Stock Grant Agreement dated July 19, 2022 under the Sachem Capital Corp. 2016 Equity Compensation Plan between Sachem Capital Corp. and each of Leslie Bernhard, Arthur Goldberg and Brian Prinz (18)
10.8
Credit and Security Agreement, dated as of March 20, 2025, among SN Holdings, LLC, as the borrower, Sachem Capital Corp., as the guarantor, the lenders party thereto and Needham Bank, as administrative agent (27)
10.9**
Fin al Form of the Restrictive Stock Grant Agreement dated February 17, 2023 under the Sachem Capital Corp. 2016 Equity Compensation Plan between the Company and John L. Villano (22)
10.10**
Final Form of the Restricted Stock Grant Agreement dated March 19, 2024 under the Sachem Capital Corp. 2016 Equity Compensation Plan between the Company and John L. Villano (23)
10.11
Cooperation Agreement, dated August 20, 2024, between Sachem Capital Corp. and Blackwells Capital LLC, Blackwells Onshore I LLC and Jason Aintabi (24)
10.12**
Final Form of the Restrictive Stock Grant Agreement dated September 7, 2023 under the Sachem Capital Corp. 2016 Equity Compensation Plan between Sachem Capital Corp. and each of Leslie Bernhard, Arthur Goldberg and Brian Prinz (25)
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10.13**
Letter Agreement, dated December 13, 2024, between the Company and Jeffery C. Walraven (a portion of the exhibit has been excluded from the exhibit because it both (i) is not material and (ii) is the type that the company treats as private or confidential) (26).
10.14**
Final Form of the Restrictive Stock Grant Agreement dated March 10, 2025 under the Sachem Capital Corp. 2016 Equity Compensation Plan between Sachem Capital Corp. and each of Arthur Goldberg, Brian Prinz and Jeffery Walraven*
14.1
Code of Ethics(7)
19.1
Insider Trading Policy of the Company*
21.1
List of Subsidiaries*
23.1
Consent of Baker Tilly US, LLP, dated March 31, 2025*
23.2
Consent of Hoberman & Lesser CPA’s, LLP, dated March 31, 2025*
31.1
Chief Executive Officer Certification as required under section 302 of the Sarbanes Oxley Act *
31.2
Chief Financial Officer Certification as required under section 302 of the Sarbanes Oxley Act *
32.1
Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes Oxley Act ***
32.2
Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes Oxley Act ***
97.1
Policy Relating to Recovery of Erroneously Awarded Compensation (23)
99.1
Open-End Construction Mortgage, Security Agreement and Assignment of Leases and Rents, dated February 28, 2023, by Sachem Capital Corp., in connection with the New Haven Bank Mortgage refinancing (21)
99.2
Commercial Term Note made by Sachem Capital Corp to New Haven Bank, dated February 28, 2023, in the principal amount of $1,660,000 (attached as Exhibit B to Exhibit 99.1 above)
99.3
Loan Agreement between Sachem Capital Corp. and New Haven Bank, dated as of February 28, 2023 (21)
99.4
Mortgage Release releasing Sachem Capital Corp. from the $1.4 million NHB Mortgage (21)
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
101. PRE
XBRL Taxonomy Extension Presentation Linkbase Document *
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*
*
Filed herewith.
**
Compensation plan or arrangement for current or former executive officers and directors.
***
Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
(1)
Previously filed as an exhibit to the Registration Statement on Form S-11, as amended (SEC File No.: 333-214323) and incorporated herein by reference.
(2)
Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 2019, and incorporated herein by reference.
(3)
Previously filed as an exhibit to the Current Report on Form 8-K on November 27, 2019, and incorporated herein by reference.
(4)
Previously filed as an exhibit to the Current Report on Form 8-K on June 25, 2019, and incorporated herein by reference.
(5)
Intentionally omitted.
(6)
Previously filed as an exhibit to the Current Report on Form 8-K on September 9, 2020, and incorporated herein by reference.
(7)
Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
(8)
Previously filed as an exhibit to the Current Report on Form 8-K on June 29, 2021, and incorporated herein by reference.
(9)
Previously filed as an exhibit to the Current Report on Form 8-K on December 20, 2021, and incorporated herein by reference.
(10)
Previously filed as an exhibit to the Current Report on Form 8-K on April 13, 2021, and incorporated herein by reference.
(11)
Previously filed as an exhibit to the Current Report on Form 8-K on July 27, 2021, and incorporated herein by reference.
(12)
Intentionally omitted.
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(13)
Previously filed as an exhibit to the Current Report on Form 8-K on March 9, 2022, and incorporated herein by reference.
(14)
Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2021, and incorporated herein by reference.
(15)
Previously filed as an exhibit to the Current Report on Form 8-K on May 12, 2022, and incorporated herein by reference.
(16)
Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended March 31, 2022, and incorporated herein by reference.
(17)
Intentionally omitted.
(18)
Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended June 30, 2022, and incorporated herein by reference.
(19)
Previously filed as an exhibit to the Current Report on Form 8-K on August 24, 2022, and incorporated herein by reference.
(20)
Previously filed as an exhibit to the Current Report on Form 8-K on August 23, 2022, and incorporated herein by reference.
(21)
Previously filed as an exhibit to the Current Report on Form 8-K on March 3, 2023, and incorporated herein by reference.
(22)
Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended March 31, 2023, and incorporated herein by reference.
(23)
Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2023, and incorporated herein by reference.
(24)
Previously filed as an exhibit to the Current Report on Form 8-K on August 26, 2024, and incorporated herein by reference.
(25)
Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 2024, and incorporated herein by reference.
(26)
Previously filed as an exhibit to the Current Report on Form 8-K on December 16, 2024, and incorporated herein by reference.
(27)
Previously filed as an exhibit to the Current Repoty on Form 8-K on March 27, 2025, and incorporated herein by reference.
(c)
No financial statement schedules are included because the information is either provided in the financial statements or is not required under the related instructions or is inapplicable and such schedules therefore have been omitted.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SACHEM CAPITAL CORP.
By:
/s/ John L. Villano
John L. Villano, CPA
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 31, 2025:
Signature
Title
/s/ John L. Villano
Chairman, Chief Executive Officer and President
John L. Villano, CPA
(Principal Executive Officer)
/s/ Jeffery C. Walraven
Interim Chief Financial Officer and Director
Jeffery C. Walraven
(Principal Accounting and Financial Officer)
/s/ Leslie Bernhard
Director
Leslie Bernhard
/s/ Arthur L. Goldberg
Director
Arthur L. Goldberg
/s/ Brian A. Prinz
Director
Brian A. Prinz
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INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
Report of Independent Registered Public Accounting Firm (PCAOB ID 23 )
F-2
Report of Predecessor Auditor (PCAOB ID 694 )
F-5
Consolidated Financial Statements:
Consolidated Balance Sheets
F-5
Consolidated Statements of Operations
F-6
Consolidated Statements of Comprehensive (Loss) Income
F-7
Consolidated Statements of Changes in Shareholders’ Equity
F-8
Consolidated Statements of Cash Flows
F-9
Notes to Consolidated Financial Statements
F-11
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Sachem Capital Corp.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Sachem Capital Corp. (the “Company”) as of December 31, 2024, the related statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows, for the year ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
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Allowance for Credit Losses
Critical Audit Matter Description
As described in Note 2, the Company records an allowance for credit losses in accordance with the current expected credit loss standard on the Company’s loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics.
The Company utilizes a vintage loss-rate method for estimating current expected credit losses. The vintage 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 allowance for credit losses, the Company considers various factors including (1) historical loss experience and unrealized forecasted losses 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.
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 to make adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio.
We identified the allowance for credit losses as a critical audit matter as auditing the allowance for credit losses required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.
How the Critical Audit Matter was Addressed in the Audit
The primary procedures we performed to address this critical audit matter included:
● Evaluated management’s allowance for credit losses methodology, including the vintage loss-rate method, and concluded it was appropriate and consistently applied.
● Tested the completeness and accuracy of key internal data sources and verified external data inputs used in the model.
● Assessed key assumptions such as segmentation by region and vintage, historical loss rates, and the lookback period by recalculating rates and performing sensitivity analysis.
● Evaluated qualitative adjustments by reviewing macroeconomic indicators and tested the consistency and supportability of applied basis point allocations.
Classification, Valuation, and Disclosure of Investments in Limited Liability Companies
Critical Audit Matter Description
As described in Notes 2 and 17, the Company has certain investments in limited liability companies, consisting of limited liability membership equity investments in real estate note-on-note mortgage investment vehicles, direct investments in real estate, and a direct investment in a real estate asset manager. The Company accounts for its investments in limited liability companies based on the level of ownership, control, and influence in accordance with ASC 810, Consolidations , ASC 323, Equity Method and Joint Ventures, and ASC 321 , Investments in Equity Securities . These investments require a detailed analysis of the type of investment on an investment-by-investment basis to determine the appropriate classification of the investment as to whether the investment should be reported using the cost basis, the equity method or whether the investment should be consolidated based on the accounting literature.
Management evaluated the operating agreements and concluded that the Company does not have control over the investees as defined in ASC 810, Consolidations . Management further evaluated their investments in limited liability companies, and determined the Company does not have significant influence over the investees as defined in ASC 323, Equity Method and Joint Ventures. As such, management elected to apply the measurement alternative in accordance with ASC 321, Investments in Equity Securities, and carry the investments at cost less impairment.
F-3
Table of Contents
We identified management’s assessment of whether the operating agreements for investments in limited liability companies provide the Company with a controlling financial interest or significant influence as a critical audit matter due to the complexity of applying the accounting principles of ASC 810, ASC 323, and ASC 321 to the various operating agreements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assessment of whether the investments in limited liability companies provide the Company with a controlling financial interest or significant influence included the following, among others:
● Read and evaluated the terms of the various operating agreements and inquired of management to understand the legal entities involved, the rights and responsibilities of each party, and the related commercial terms.
● Evaluated management’s analysis of significant activities of the investee and which equity holders have the power to direct such activities. We considered the purpose and design of the entity, the composition of the board of directors and other legal rights of the parties, including the significance of the decision-making rights of each party in assessing which party has the power to direct the activities that most significantly affect the performance of the investee, as well as the substance of the arrangements.
● Compared the rights of each party to underlying executed legal documents and discussed with management the purpose and design of the investee entity.
● Evaluated the Company’s conclusion that it does not have either a controlling financial interest or significant influence as a result of the terms of the limited liability operating agreements.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditor since 2024.
Philadelphia, Pennsylvania
March 31, 2025
F-4
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Sachem Capital Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Sachem Capital Corp. (the “Company”) as of December 31, 2023 and the related statements of comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (FASB ASC 326): Measurement of Credit Losses on Financial Instruments . The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
MGI Worldwide is a network of independent audit, tax, accounting and consulting firms. MGI Worldwide does not provide any services and its member firms are not an international partnership. Each member firm is a separate entity and neither MGI Worldwide nor any member firm accepts responsibility for the activities, work, opinions or services of any other member firm. For more information visit www.mgiworld.com/legal
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Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
Mortgages Receivable and Allowance for Credit Losses
As discussed in Note 2 to the financial statements, the Company estimates its allowance for credit losses (“ACL”) in accordance with Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (the “ASU”). The Company adopted Accounting Standards Codification (“ASC”) Topic 326 as of January 1, 2023 as described in Note 2 to the financial statements. The ASU requires credit losses on loans to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model) which estimates credit losses over the expected life of the loan. Estimates of expected credit losses are based on historical experience, adjusted for management’s evaluation of current conditions and reasonable and supportable forecasts. The impact of adoption of this standard on January 1, 2023, was a $2.0 million increase to the allowance for credit losses, a $0.5 million increase to the allowance for unfunded commitments, and an increase of $2.5 million to cumulative net earnings for the cumulative effect adjustment recorded upon adoption.
The Company’s measurement of expected credit losses of loans on a pooled basis, when the loans share similar risk characteristics, is based on historical data that is adjusted, as necessary, for both internal and external qualitative factors where there are differences in the historical loss data of the Company and current or projected future conditions. The Company currently pools its portfolio based on geographic locations. Consideration of the relevant qualitative factors is used to bring the ACL to the level management believes is appropriate based on factors that are otherwise unaccounted for in the quantitative process. The ACL also includes reserves for loans evaluated on an individual basis, such as certain loans identified for potential foreclosure proceedings for either non-performance or other similar criteria. Management applies its judgment in the determination of the qualitative factors and establishes reserves on an individual basis to estimate the ACL.
Auditing the initial adoption of the relative qualitative factors used in the allowance for credit losses and the subsequent application of the qualitative factors was identified by us as a critical audit matter because of the significant auditor judgement applied and significant audit effort needed to evaluate the subjective and complex judgements made by management during adoption and subsequent application of the qualitative factor framework.
The primary procedures we performed, with the assistance of our valuation specialist, to address this critical audit matter included:
● Obtained an understanding of the Company ’ s process for establishing the ACL, including determination of the qualitative factors and reserve assumptions for loans evaluated on an individual basis.
● We tested the underlying data, including all historical information used in the Company ’ s model for establishing the ACL for completeness and accuracy, including recalculation of the analyses.
● We assessed all significant assumptions and subjective adjustments made by management to the vintage/historical information used in the model by analyzing the facts and circumstances provided by management for such adjustments.
● For loans evaluated on an individual basis, we obtained and evaluated valuations from the Company ’ s third-party valuation specialists, as well as obtained and evaluated other publicly available market data, and compared said values to the aggregate amounts owed by borrowers, for indication of loan losses; We also evaluated managements significant judgments applied in determining whether indicators of impairment were present, with respect to the Company ’ s loan portfolio and the underlying collateral, by obtaining evidence to corroborate such judgments and searching for evidence contrary to such judgments, which included consideration of evidence obtained after the balance sheet date but before the issuance of this report.
We have served as the Company’s auditor from 2015 to 2024.
New York , New York
April 1, 2024
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SACHEM CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Years Ended
December 31,
2024
2023
Assets
Cash and cash equivalents
$
18,066
$
12,598
Investment securities (at fair value)
1,517
37,776
Loans held for investment (net of deferred loan fees of $ 1,950 and $ 4,647 )
375,041
494,588
Allowance for credit losses
( 18,470 )
( 7,523 )
Loans held for investments, net of allowances for credit losses
356,571
487,065
Loans held for sale (net of valuation allowance of $ 4,880 and $ 0 )
10,970
—
Interest and fees receivable, net
3,768
8,475
Due from borrowers, net
5,150
5,597
Real estate owned, net
18,574
3,462
Investments in limited liability companies
53,942
43,036
Investments in rental real estate, net
14,032
10,554
Property and equipment, net
3,222
3,373
Other assets
6,164
8,956
Total assets
$
491,976
$
620,892
Liabilities and Shareholders' Equity
Liabilities:
Notes payable (net of deferred financing costs of $ 3,713 and $ 6,048 )
$
226,526
$
282,353
Repurchase agreements
33,708
26,461
Mortgage payable
1,002
1,081
Lines of credit
40,000
61,792
Accrued dividends payable
—
5,144
Accounts payable and accrued liabilities
4,377
2,322
Advances from borrowers
4,047
10,998
Below market lease intangible
665
665
Total liabilities
310,325
390,816
Commitments and Contingencies – Note 12
Shareholders’ equity:
Preferred shares - $ .001 par value; 5,000,000 shares authorized; 2,903,000 shares designated as Series A Preferred Stock; 2,306,748 and 2,029,923 shares of Series A Preferred Stock issued and outstanding at December 31, 2024 and December 31, 2023, respectively
2
2
Common stock - $ .001 par value; 200,000,000 shares authorized; 46,965,306 and 46,765,483 issued and outstanding at December 31, 2024 and December 31, 2023, respectively
47
47
Additional paid-in capital
256,956
249,826
Accumulated other comprehensive income
—
316
Cumulative net earnings
35,518
75,089
Cumulative dividends paid
( 110,872 )
( 95,204 )
Total shareholders’ equity
181,651
230,076
Total liabilities and shareholders’ equity
$
491,976
$
620,892
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years Ended
December 31,
2024
2023
Revenues
Interest income from loans
$
43,154
$
49,265
Fee income from loans
8,594
10,699
Income from limited liability company investments
5,239
3,522
Other investment income
391
1,209
Other income
122
54
Total revenues
57,500
64,749
Operating expenses
Interest and amortization of deferred financing costs
27,798
29,190
Compensation and employee benefits
6,824
6,932
General and administrative expenses
6,841
4,955
Provision for credit losses related to available-for-sale debt securities
—
809
Provision for credit losses related to loans held for investment
26,928
5,588
Change in valuation allowance related to loans held for sale
4,880
—
Impairment loss on real estate owned
492
794
(Gain) loss on sale of real estate owned and property and equipment, net
( 439 )
88
Other expenses
1,952
1,354
Total operating expenses
75,276
49,710
Operating (loss) income before other (loss) income
( 17,776 )
15,039
Other (loss) income
Gain on equity securities
178
860
Loss on sale of loans
( 21,973 )
—
Total other (loss) income, net
( 21,795 )
860
Net (loss) income
( 39,571 )
15,899
Preferred stock dividend
( 4,304 )
( 3,795 )
Net (loss) income attributable to common shareholders
$
( 43,875 )
$
12,104
Basic (loss) earnings per Common Share
$
( 0.93 )
$
0.27
Diluted (loss) earnings per Common Share
$
( 0.93 )
$
0.27
Basic weighted average Common Shares outstanding
47,413,012
44,244,988
Diluted weighted average Common Shares outstanding
47,413,012
44,244,988
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except share and per share data)
Years Ended
December 31,
2024
2023
Net (loss) income
$
( 39,571 )
$
15,899
Other comprehensive (loss) income:
Unrealized holding gains on available for sale (“AFS”) securities
—
69
Less: Reclassification adjustment for gains / losses realized in net (loss) income
( 316 )
—
Less: Reclassification of losses from unrealized to provision for credit losses
—
809
Other comprehensive (loss) income
( 316 )
878
Comprehensive (loss) income, net
( 39,887 )
16,777
Preferred stock dividend
( 4,304 )
( 3,795 )
Total comprehensive (loss) income attributable to common shareholders
$
( 44,191 )
$
12,982
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share data)
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
Accumulated
Additional
Other
Preferred Shares
Common Shares
Paid in
Comprehensive
Cumulative
Cumulative
Shares
Amount
Shares
Amount
Capital
Income (Loss)
Net Earnings
Dividends Paid
Totals
Balance, January 1, 2023
1,903,000
$
2
41,093,536
$
41
$
226,221
$
( 562 )
$
61,680
$
( 69,675 )
$
217,707
Cumulative effect of adoption of new accounting principle (ASU 2016-13)
—
—
—
—
—
—
( 2,490 )
—
( 2,490 )
Issuance of Series A Preferred Stock, net of expenses
126,923
—
—
—
2,564
—
—
—
2,564
Issuance of Common Shares, net of expenses
—
—
5,546,891
5
20,445
—
—
—
20,450
Stock buyback
—
—
( 71,000 )
—
( 226 )
—
—
—
( 226 )
Stock-based compensation
—
—
196,056
1
822
—
—
—
823
Reclassification of losses from unrealized to provision for credit losses
—
—
—
—
—
809
—
—
809
Unrealized holding gains on AFS securities
—
—
—
—
—
69
—
—
69
Dividends paid on Series A Preferred Stock
—
—
—
—
—
—
—
( 3,795 )
( 3,795 )
Dividends paid on Common Shares
—
—
—
—
—
—
—
( 16,590 )
( 16,590 )
Dividends declared on Common Shares
—
—
—
—
—
—
—
( 5,144 )
( 5,144 )
Net income
—
—
—
—
—
—
15,899
—
15,899
Balance, December 31, 2023
2,029,923
$
2
46,765,483
$
47
$
249,826
$
316
$
75,089
$
( 95,204 )
$
230,076
Issuance of Series A Preferred Stock, net of expenses
276,825
—
—
—
5,706
—
—
—
5,706
Issuance of Common Shares, net of expenses
—
—
568,711
1
2,049
—
—
—
2,050
Stock buyback
—
—
( 581,745 )
( 1 )
( 1,488 )
—
—
—
( 1,489 )
Stock-based compensation, less shares forfeited
—
—
212,857
—
863
—
—
—
863
Reclassification adjustment for gains / losses realized in net loss
—
—
—
—
—
( 316 )
—
—
( 316 )
Dividends paid on Series A Preferred Stock
—
—
—
—
—
—
—
( 4,304 )
( 4,304 )
Dividends paid on Common Shares
—
—
—
—
—
—
—
( 11,364 )
( 11,364 )
Net loss
—
—
—
—
—
—
( 39,571 )
—
( 39,571 )
Balance, December 31, 2024
2,306,748
$
2
46,965,306
$
47
$
256,956
$
—
$
35,518
$
( 110,872 )
$
181,651
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
December 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
$
( 39,571 )
$
15,899
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization of deferred financing costs
2,456
2,415
Depreciation expense
372
266
Write-off of other assets - pre-offering costs
—
477
Stock-based compensation
863
823
Provision for credit losses related to available-for-sale debt securities
—
809
Provision for credit losses related to loans held for investment
26,928
5,588
Change in valuation allowance related to loans held for sale
4,880
—
Loss on sale of Loans
21,973
—
Impairment loss on real estate owned
492
794
(Gain) loss on sale of real estate owned and property and equipment, net
( 439 )
88
(Gain) on equity securities
( 178 )
( 860 )
Deferred loan fees revenue
( 2,697 )
287
Changes in operating assets and liabilities:
Interest and fees receivable, net
2,476
( 2,285 )
Other assets
2,676
( 3,596 )
Due from borrowers, net
( 1,431 )
( 334 )
Accounts payable and accrued liabilities
1,041
374
Advances from borrowers
( 6,951 )
1,106
Total adjustments and operating changes
52,461
5,952
NET CASH PROVIDED BY OPERATING ACTIVITIES
12,890
21,851
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities
( 7,767 )
( 30,415 )
Proceeds from the sale of investment securities
43,888
18,120
Purchase of interests in limited liability companies
( 18,271 )
( 13,896 )
Proceeds from limited liability companies returns of capital
7,366
1,661
Proceeds from sale of real estate owned
1,624
450
Acquisitions of and improvements to real estate owned
( 510 )
( 229 )
Proceeds from sale of property and equipment
9
1,299
Purchase of property and equipment
( 77 )
( 784 )
Improvements in investment in rental real estate
( 3,025 )
( 10,845 )
Principal disbursements for loans
( 134,298 )
( 204,885 )
Principal collections on loans
190,971
167,036
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
79,910
( 72,488 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit
27,959
58,204
Repayments on lines of credit
( 49,751 )
—
Proceeds from repurchase agreements
19,055
14,028
Repayments of repurchase agreements
( 11,808 )
( 30,100 )
(Repayment of) proceeds from mortgage payable
( 79 )
331
Dividends paid on Common Shares
( 16,508 )
( 21,933 )
Dividends paid on Series A Preferred Stock
( 4,304 )
( 3,795 )
Proceeds from issuance of common shares, net of expenses
2,050
20,450
Repurchase of Common Shares
( 1,489 )
( 226 )
Proceeds from issuance of Series A Preferred Stock, net of expenses
5,706
2,563
Repayment of notes payable
( 58,163 )
—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
( 87,332 )
39,522
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
5,468
( 11,115 )
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
12,598
23,713
CASH AND CASH EQUIVALENTS - END OF PERIOD
$
18,066
$
12,598
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
December 31,
2024
2023
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the period for interest
$
25,300
$
26,616
Real estate acquired in connection with foreclosure of certain mortgages
$
28,639
$
1,750
Loans held for investment from sale of real estate owned
$
989
$
2,577
Loans transferred from held to investment to held for sale
$
15,850
$
—
The accompanying notes are an integral part of these consolidated financial statements.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 operates its business as one segment. 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 and southeastern sections of the United States. 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 of residential real estate. 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.
Segment Reporting
The Company uses the management approach to determine reportable operating segments. The Company operates through a single operating and reporting segment with an investment objective to generate both current income and capital appreciation through its investments in real estate mortgage loans and real estate. The management approach considers the internal organization and reporting used by the Company’s Chief Executive Officer, whom serves as the chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The CODM assesses the performance and makes operating decisions of the Company on a consolidated basis primarily based on the Company’s net income. In addition to other factors and metrics, the CODM utilizes net income as a key determinant of the amount of dividends to be distributed to the Company's stockholders.
As the Company’s operations comprise of a single reporting segment, the segment assets are reflected on the accompanying consolidated balance sheet as “total assets” and the significant segment expenses are listed on the accompanying consolidated statement of operations.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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. As of December 31, 2024, the accounts and activities of these subsidiaries were not material to warrant separate disclosure or segment reporting. As a result, the Company has only one reportable segment for financial reporting purposes. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of the consolidated 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 will base the use of estimates on (a) various assumptions that consider prior reporting results, (b) the Company’s projections regarding future operations and (c) general financial market and local and general economic conditions. Actual amounts could differ from those estimates. Significant estimates include the provisions for current expected credit losses, loans held for sale at fair value, and real estate owned.
Concentration of Credit Risks
Financial instruments that may subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, loans and related receivables. Concentration of credit risk relating to loans and related receivables are managed by the Company through robust portfolio monitoring and performing due diligence prior to origination or acquisition, when and where available and appropriate.
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Table of Contents
SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Investment Securities (at fair value)
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 (loss) 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, management 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. To determine credit losses, management employs a systematic methodology that considers available quantitative and qualitative evidence. In addition, management may consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If the Company plans to sell the security or it is more likely than not that it 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 losses and/or impairments.
Marketable equity investments with readily determinable fair values are measured at fair value and are classified as trading securities with changes in value recorded in net income.
Investment in Limited Liability Companies (“LLCs”)
The Company accounts for its investments in limited liability companies based on the level of ownership, control, and influence in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 323 (Investments – Equity Method and Joint Ventures) and FASB ASC 810 (Consolidation). Investments in LLCs are classified into the following categories based on the Company’s level of influence and control:
1. Fair Value Method (FASB ASC 321) – Passive Investments (Less than 20% Ownership, No Significant Influence)
o Investments in LLCs where the Company does not exercise significant influence are accounted for under FASB ASC 321 (Investments – Equity Securities) and recorded at fair value, with changes in fair value recognized in earnings.
o If fair value is not readily determinable, the Company applies the measurement alternative, recording the investment at cost less impairment, adjusted for observable price changes.
2. Equity Method (FASB ASC 323) – Significant Influence (20% – 50% Ownership)
o The Company applies the equity method of accounting for investments where it has significant influence over the operating and financial policies of the LLC.
o Under the equity method, the Company recognizes its proportionate share of the LLC’s net income or loss in earnings and adjusts the carrying amount of the investment accordingly.
o Distributions received from equity method investments are recorded as a reduction of the investment unless they represent a return on investment, in which case they are recognized as income.
o The investment is assessed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.
3. Consolidation (FASB ASC 810) – Variable Interest Entities (“VIEs”) or Controlling Interest
o Voting Interest Model: The Company holds greater than 50% of the voting interests and has the power to direct the significant activities of the LLC.
o Variable Interest Entity (VIE) Model: If the LLC qualifies as a Variable Interest Entity, the Company consolidates the LLC when it is deemed to be the primary beneficiary of the VIE. In accordance with FASB ASC 810, the Company evaluates whether:
1. The LLC is a VIE (i.e., lacks sufficient equity to finance its operations without additional support or the equity holders do not have the power to direct significant activities); and
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. The Company has both: The power to direct the activities of the VIE that most significantly affect its economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant.
When both conditions are met, the Company consolidates the VIE in its financial statements, including the entity’s assets, liabilities, and operations. Noncontrolling interests in consolidated LLCs, if any, are presented separately within the financial statements. The Company reassesses its conclusions about VIE status and primary beneficiary determination on an ongoing basis, particularly when events occur that may change the underlying structure or governance of the investee.
For investments accounted for under the equity method or the measurement alternative cost method, the Company evaluates whether indicators of impairment exist. If an investment is determined to be other-than-temporarily impaired, the carrying value is written down to its estimated fair value, with the impairment loss recognized in earnings.
Loans held for investment
Loans that are originated and serviced by the Company, that management has the intent and ability to hold for the foreseeable future are reporting at their outstanding balances, net of an allowance for credit losses and unamortized deferred fees. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized to fee income over the contractual lives of the loans using the interest method which reflects a constant yield. Interest income on loans is accrued based on the unpaid principal balance outstanding and the contractual terms of the loan agreements.
Loans held for sale
Loans are classified as held for sale if there is an intent to sell in the near-term. These loans are recorded at the lower of amortized cost or fair value. If the fair value of a loan is determined to be less than its amortized cost, a non-recurring fair value adjustment will be recorded through a valuation allowance. When a loan is transferred into the held for sale category, any previously recorded allowance for credit losses is reversed in the provision for credit losses related to loans and the loan is recorded at its amortized cost basis. If the amortized cost basis exceeds the loan’s fair value at the date of transfer, a valuation allowance equal to the difference between amortized cost basis and fair value is recorded.
Non-accrual loans
A loan is generally placed on non-accrual status when it is probable that principal and interest will not be collected under the original contractual terms. At that time, interest income is no longer accrued. Non-accrual loans consist of loans for which principal or interest has been delinquent for 90 days or more. Interest income is subsequently recognized only to the extent it is received in cash or until the loan qualifies for return to accrual status. Loans are restored to accrual status when contractually current and the collection of future payments is reasonably assured. In certain instances, the Company may make exceptions to placing a loan on non-accrual status if the loan is in the process of modification.
Loan modifications made to borrowers experiencing financial difficulty.
In situations where economic or legal circumstances may cause a borrower to experience significant financial difficulties, the Company may grant concessions for a period of time to the borrower that it would not otherwise consider. These modified terms may include interest rate reductions, principal forgiveness, term extensions, and other-than-insignificant payment delay intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company monitors the performance of all loans, including loans modified to borrowers experiencing financial difficulty and considers loans that are 90 days past due to be in payment default.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets. Transfers of agreements that meet the sale criteria under FASB ASC 860 (Transfers and Servicing) are derecognized from the Consolidated Balance Sheets at the time of transfer. If the transfer of loans does not meet the sale criteria or participating interest criteria under FASB ASC 860, the transfer is accounted for as a secured borrowing and the loan is not de-recognized and a participating liability is recorded in the Consolidated Balance Sheets.
Allowance for Credit Losses
The Company adopted the current expected credit loss (“CECL”) standard effective January 1, 2023 in accordance with Accounting Standard Update (“ASU”) No. 2016-13. The initial CECL allowance adjustment of $ 2.5 million was recorded effective January 1, 2023 as a cumulative-effect of change in accounting principle through a direct charge to cumulative net earnings on the consolidated statements of shareholders’ equity. Subsequent changes to the CECL allowance will be recognized in the consolidated statements of operations in “Provision for credit losses related to loans held for investment”.
The Company records an Allowance for credit losses on the consolidated balance sheets with respect to its loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics. This methodology, known as the “estimated expected lifetime losses,” 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 CECL standard, as they represent a financial asset that is subject to credit risk. As allowed under the CECL standard used by the Company, as a practical expedient, the fair value of the collateral at the reporting date is compared to the net carrying amount of the loan when 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 aggregate gross outstanding principal of loans in pending/pre-foreclosure as of December 31, 2024, and December 31, 2023, was $ 52.1 million and $ 63.7 million, respectively. As of December 31, 2024, and December 31, 2023, the Company had directly reserved against these loans in foreclosure in the amounts of $ 6.1 million and $ 5.1 million, respectively. Further, the Company had direct reserves against non-performing loans held for investment that experienced declines in fair value of $ 7.3 million and $ 0 , respectively. As of December 31, 2024, the aggregate outstanding principal amount of non-performing loans held for investment with direct allowances was $ 57.8 million. Such allowances are presented net in “Loans held for investment, net” and “Loans held for sale, net” on the consolidated balance sheets included in the accompanying consolidated financial statements based on their respective classification.
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 vintage loss-rate method for estimating current expected credit losses. The vintage loss rate method involves applying a vintage 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 and unrealized forecasted losses 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’s estimate of expected credit losses includes a review of charge-off experience factors, contractual delinquency, historical collection rates, the value of underlying collateral and other information to make the necessary judgments as to allowance for 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 determined by a review of each delinquent loan. The Company has an accounting policy to not place loans on nonaccrual status unless they are more than 90 days delinquent. Accrual of interest income is generally resumed when the delinquent contractual principal and interest is paid in full or when a portion of the delinquent payments are made, and the ongoing required contractual payments have been made for an appropriate period.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the year ended December 31, 2024, the Company updated its methodology for estimating the CECL factors on its portfolio of financial assets related to loans. This update reflects the Company incorporating its current unrealized losses on individually evaluated loans into its historical loss data, as this change is believed to provide sufficient coverage to forecast estimated expected lifetime losses.
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 to make adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. The “Allowance for credit losses” related to the principal outstanding is presented within “Loans held for investment, net” and for unfunded commitments is within accounts payable and accrued liabilities in the Company’s consolidated balance sheets. The “Allowance for credit losses” related to the late payment fees are presented in “Interest and fees receivable, net”, and “Due from borrowers, net” in the Company’s consolidated balance sheets. Lastly, the allowance related to unfunded commitments for construction loans is presented in “Accounts payable and accrued liabilities” on the Company’s consolidated balance sheets.
See Note 4 – Loans and Allowance for Credit Losses for further details.
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 FASB 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 2021 to serve as the Company’s 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 building in March 2023. The land is carried at cost. The building is stated at cost less accumulated depreciation. The building is being depreciated using the straight – line method over its estimated useful life of 40 years . The building was placed in service during the three months ended March 31, 2023. Further, furniture and fixtures, computer hardware and software, and vehicles are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated using an estimated useful life of three to five years . Computer hardware and software are depreciated using an estimated useful life of two to three years . Vehicles are depreciated using an estimated useful life of five years .
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables represent the Company’s property and equipment, net:
Year ended December 31, 2024
Cost
Accumulated Depreciation
Property and Equipment, Net
(in thousands)
Building
$
2,557
$
( 110 )
$
2,447
Land
255
—
255
Furniture and fixtures
308
( 117 )
191
Computer hardware and software
295
( 246 )
49
Vehicles
435
( 155 )
280
Total property and equipment, net
$
3,850
$
( 628 )
$
3,222
Year ended December 31, 2023
Cost
Accumulated Depreciation
Property and Equipment, Net
(in thousands)
Building
$
2,541
$
( 47 )
$
2,494
Land
255
—
255
Furniture and fixtures
281
( 51 )
230
Computer hardware and software
276
( 213 )
63
Vehicles
429
( 98 )
331
Total property and equipment, net
$
3,782
$
( 409 )
$
3,373
Investment in Rental Real Estate
Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment, including interest and debt expense, are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the estimated useful lives of these assets which range from 7 to 40 years . Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets.
Upon the acquisition of real estate, the Company assesses whether the transaction should be accounted for as an asset acquisition or as a business combination. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. Acquisitions of real estate generally will not meet the definition of a business because substantially all the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related identified intangible assets).
The Company allocates the purchase price of real estate to land and building (inclusive of site and tenant improvements) and, if determined to be material, intangible assets, such as the value of above- and below-market leases and deferred leasing costs associated with the in-place leases.
The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed involves subjectivity as the allocations are based on an analysis of the respective fair values. In determining the fair value of the real estate acquired, the Company utilized a third-party valuation which primarily utilizes cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as a sales comparison approach, which utilizes comparable sales, listings and sales contracts. The Company assesses the fair value of the leases acquired based on estimated cash flow projections that utilize appropriate discount rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The determined and allocated fair values to the real estate acquired will affect the amount of depreciation and amortization we record over the respective estimated useful lives or term of the lease.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 23, 2023, the Company entered into a purchase and sale contract (the “Westport Purchase Agreement”) to acquire a commercial office building in Westport, CT (the “Westport Asset”) for $ 10.6 million. The transaction was completed on August 31, 2023. In connection with this transaction, which was accounted for as an asset acquisition, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on fair value. In addition, the Company recorded a lease liability stemming from below-market rental rates. Total consideration, including capitalized acquisition-related costs, was $ 10.7 million.
See Note 5 – Investment in Rental Real Estate, net for further details surrounding the above acquisition as of December 31, 2024.
Real Estate Owned (“REO”)
REO acquired through foreclosure is initially measured at fair value and is thereafter subject to an ongoing impairment analysis. After an REO acquisition, events or circumstances may occur that result in a material and sustained decrease in the cash flows generated from the property or other market indicators including listing data may signal a decline in the liquidation value. REO is evaluated for recoverability when impairment indicators are identified. Any impairment losses or recoveries are included in the consolidated statements of operations.
Impairment of Long-Lived Assets
The Company continually monitors events or changes in circumstances that could indicate the 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 flow is 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 value of the assets.
Goodwill
Goodwill is tested for impairment annually as of the balance sheet date or more frequently if events or changes in circumstances indicate potential impairment. Goodwill at December 31, 2024 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 adheres to 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 it compares the fair value of that reporting unit with its carrying value, including goodwill.
As of December 31, 2024 and December 31, 2023, goodwill was $ 0.4 million, respectively, which is presented in Other assets on the Company’s consolidated balance sheets. As of and during the years ended December 31, 2024, and 2023, there was no impairment to goodwill.
Deferred Financing Costs
Costs incurred in connection with the Company’s revolving credit facilities, described in Note 8 – Lines of Credit, Mortgage Payable Churchill Facility – are amortized over the term of the applicable facility using the straight-line method, which approximates the effective interest.
Costs incurred by the Company in connection with the issuance of unsecured, unsubordinated notes, described in Note 9 – Unsecured Notes Payable – are being amortized over the term of the respective unsecured, unsubordinated notes using the effective interest method.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 loans that are more than 90 days past due or interest charged at default rates.
Origination, modification, extension, and construction servicing 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 FASB ASC 310 (Receivables).
Interest Reserves
The Company utilizes interest reserves on certain loans which are applied to future interest payments. Such reserves are established at the time of loan origination. The interest reserve is recorded as a liability as it represents unearned interest revenue. The interest reserve is relieved when the interest on the loan is earned, and interest income is recorded in the period when the interest is earned in accordance with the credit agreement. The interest payment is deducted from the interest reserve deposit balance on the date when the interest payment is due. The decision to establish an interest reserve is made during the underwriting process and considers the creditworthiness and expertise of the borrower, the feasibility of the project, and the debt coverage provided by the real estate and other pledged collateral. It is the Company’s policy to recognize income for this interest component as long as the borrower is progressing as originally projected and if there has been no deterioration in the financial condition of the borrower or the underlying project. The Company’s standard accounting policies for interest income recognition are applied to all loans, including those with interest reserves.
Expenses
Interest expense, in accordance with the Company’s financing agreements, is recorded on an accrual basis. General and administrative expenses, including professional fees, are expensed as incurred.
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 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. Other than taxes incurred by the Company’s taxable REIT subsidiary (“TRS”), the Company does not expect to incur any corporate federal income tax liability outside of the TRS, as it believes it has maintained its qualification as a REIT.
The Company has elected, and may elect in the future, to treat certain of its existing or newly created corporate subsidiaries as 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. During the year ended December 31, 2024, the Company’s TRSs recognized provisions for federal and state income tax of $ 0.2 million, which is represented in Other expenses on the Company’s consolidated statements of operations. During the year ended December 31, 2023, there were no recognized provisions for federal income tax nor state tax.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Sub-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 December 31, 2024 and 2023.
(Losses) Earnings Per Share
Basic and diluted (losses) earnings per share are calculated in accordance with FASB ASC 260 (Earnings Per Share). Under FASB ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares, $ .001 par value per share, (“Common Shares”) outstanding for the period. The computation of diluted (losses) earnings per share is similar to basic (losses) earnings per share, except that the denominator is increased to include the potential dilution from our unvested restricted stock awards, that contain non-forfeitable rights to dividends so therefore deemed to participating, for Common Shares using the treasury stock method. The numerator in calculating both basic and diluted (losses) earnings per common share for each period is the reported net (loss) income.
For the year ended December 31, 2024 , the Company had basic and diluted weighted average shares of 47,413,012 outstanding, resulting in basic and diluted loss per share of $ 0.93 . As the Company incurred a net loss attributable to common shareholders for the year ended December 31, 2024 all restricted shares would be deemed antidilutive. For the year ended December 31, 2023, the Company had basic and diluted weighted average shares of 44,244,988 outstanding, resulting in basic and diluted earnings per share of $ 0.27 . While the Company had net income attributable to common shareholders for the year ended December 31, 2023, the Company did not adjust the dilutive share calculation based on even if the Company assumed all 222,836 shares of unvested restricted stock at December 31, 2023 were deemed dilutive under the treasury method, the resulting diluted earnings per share would remain unchanged at $ 0.27 .
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (FASB ASC 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 intends to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 applies retrospectively to all prior periods presented. This update did not have a material impact on the Company’s consolidated financial statements. See Note 1 – The Company for further information.
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income (FASB ASC 220-40): Expense Disaggregation Disclosures” (“ASU 2024-03”). ASU 2024-03 requires additional disclosure in the notes to the financial statements of specified information about certain costs and expenses. The ASU is effective in reporting periods beginning after December 15, 2026, and interim periods within annual periods beginning December 15, 2027, on a prospective or retrospective basis. Early adoption is permitted, and the Company is currently assessing the impact upon adoption of this standard on the 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 Company’s December 31, 2023 consolidated financial statements have been reclassified to conform to the December 31, 2024 presentation. These reclassifications had no effect on the year ended December 31, 2023 net income.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurement
The Company uses estimated of fair value in applying various accounting standards for its consolidated financial statements on either a recurring or non-recurring basis. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Company groups its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs. The fair value hierarchy is as follows:
Level 1 - Inputs that represent quoted prices for identical instruments in active markets.
Level 2 - Inputs that represent quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 - Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
The following tables illustrate the assets and liabilities measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets:
December 31, 2024
(in thousands)
Level 1
Level 2
Level 3
Total
Stocks and ETF’s
$
1,517
$
—
$
—
$
1,517
Mutual funds
—
—
—
—
Debt securities
—
—
—
—
Preferred/Fixed rate cap securities
—
—
—
—
Loans held for sale, net
—
—
10,970
10,970
December 31, 2023
(in thousands)
Level 1
Level 2
Level 3
Total
Stocks and ETF’s
$
1,755
$
—
$
—
$
1,755
Mutual funds
16,237
—
—
16,237
Debt securities
18,945
—
—
18,945
Preferred/Fixed rate cap securities
—
839
—
839
Loans held for sale, net
—
—
—
—
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, upon their acquisition or when there is evidence of impairment). The following table illustrates financial instruments measured at fair value on a nonrecurring basis:
December 31, 2024
(in thousands)
Level 1
Level 2
Level 3
Total
Individually evaluated loans, net of allowance for credit losses
$
—
$
—
$
80,757
$
80,757
Real estate owned, net
—
—
18,574
18,574
December 31, 2023
(in thousands)
Level 1
Level 2
Level 3
Total
Individually evaluated loans, net of allowance for credit losses
$
—
$
—
$
21,597
$
21,597
Real estate owned, net
—
—
3,462
3,462
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying amounts and fair values of financial instruments that are not carried at fair value at December 31, 2024 and December 31, 2023 in the Consolidated Balance Sheets are as follows:
Carrying Amount
Fair Value Measurement
(in thousands)
2024
2023
2024
2023
Level 1
Cash and cash equivalents
$
18,066
$
12,598
$
18,066
$
12,598
Notes payable (listed) – fixed rate debt
231,241
289,482
194,810
260,249
Level 2
Lines of credit and repurchase agreements – variable rate debt
73,708
88,253
73,708
88,253
Level 3
Loans held for investment, net
356,571
487,065
356,571
487,065
Loans held for sale, net
10,970
—
10,970
—
Interest and fees receivable and due from borrowers
8,918
14,072
8,918
14,072
Investments in limited liability companies
53,942
43,036
53,942
43,036
Advances from borrowers
4,047
10,998
4,047
10,998
Mortgage payable
1,002
1,081
1,002
1,081
Following is a description of the methodologies used for assets measured at fair value:
Stocks and ETFs (Level 1): Valued at the closing price reported in the active market in which the individual securities are traded.
Mutual funds (Level 1): 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.
Preferred/Fixed rate cap securities: The company classifies preferred/fixed rate cap securities as Level 2 in the fair value hierarchy because their fair value is determined using observable inputs such as interest rates and credit spreads. These inputs are based on market data or pricing models rather than quoted prices for identical assets. Since the securities are not actively traded, the company uses observable inputs to estimate their value, making Level 2 the appropriate classification.
Loans held for investment and related interest and fees receivables and due from/advances from borrowers : The fair value of mortgage loans held for investment and related receivable/liability balances is based on credit risk and discount rates that are not observable in the marketplace and therefore represents a Level 3 measurement.
Loans held for sale: The fair value of loans held for sale is determined by the lower of cost or market approach, where cost represents the carrying value of the loans, and market represents the fair value derived from a collateral analysis. Since this analysis involves significant judgment, including assumptions regarding the value of underlying collateral and potential recovery, it constitutes a Level 3 measurement. These assumptions are not readily observable in the market and require significant management estimation.
Individually evaluated loans, net of allowance for credit losses: This category consists of loans that were individually evaluated for credit losses, net of the related allowance for credit losses, and have been classified as Level 3 assets. All of the Company’s individually evaluated loans for 2024 and 2023, whether reporting a specific allowance allocation or not, are considered collateral-dependent. The Company utilized Level 3 inputs such as independent appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The Company estimates liquidation as a selling cost percentage in connection with the asset, which typically ranges from 1 - 8 %. Please note this category is inclusive of foreclosed loans not held for sale, and is included in loans held for investment.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real estate owned, net : Real estate owned, net, is classified as a Level 3 asset in the fair value hierarchy due to the significant use of unobservable inputs in determining its fair value. These unobservable inputs typically include estimates based on management’s judgment, such as the anticipated market value, property condition, location, and projected income potential. The Company may adjust such values downward for qualitative factors such as economic conditions and estimated liquidation expenses. The Company estimates liquidation as a selling cost percentage in connection with the asset, which typically ranges from 1 - 8 %. As no active markets or observable inputs exist for these assets, the valuation process involves a higher degree of subjectivity and relies on internal assumptions, appraisals, and models that are not directly observable.
Investments in Limited Liability Companies (LLCs): The Company holds noncontrolling interests in various LLCs accounted for using the measurement alternative under FASB ASC 321. These investments are carried at cost, less impairment, and adjusted for observable price changes.
Fixed rate debt : Fixed rate debt is classified as Level 1 and its fair value is based on quoted prices for similar instruments or calculated utilizing model derived valuations in which significant inputs are observable in active markets.
Variable rate debt : Variable rate debt is classified as Level 2 and the fair values of our borrowings under our revolving credit facility and other variable rate debt are reasonably estimated at their notional amounts due to the predominance of floating interest rates, which generally reflect market conditions.
Mortgage payable: Mortgage payable is classified as Level 3 and the fair value of our borrowings are primarily based on unobservable inputs that effect the Company’s own assumptions about the factors that market participants would use in pricing the mortgage. The mortgage payable does not have a quoted market price in an active market, and significant inputs such as the interest rate, the probability of default, and the estimated repayment terms are not readily observable in the market.
Impact of Fair Value of Available-for-sale Securities on Other Comprehensive (Loss) Income
The following table presents the impact of the Company’s debt securities on its Other Comprehensive Income (“OCI”) for the years ended December 31, 2024 and 2023:
Year Ended
December 31,
2024
2023
(in thousands)
OCI from AFS debt securities:
Unrealized gain (losses) on debt securities at beginning of period
$
316
$
( 562 )
Unrealized holding gains on AFS securities
—
69
Reclassification adjustment for gains / losses realized in net (loss) income
( 316 )
—
Reclassification of losses from unrealized to provision for credit losses
—
809
Change in OCI from AFS debt securities
( 316 )
878
Balance at end of period
$
—
$
316
As of December 31, 2024, and December 31, 2023, the Company recorded an “Allowance for credit losses” on debt securities of $ 0 and $ 0.8 million, respectively, based on unrealized losses for a trailing twelve months, which is presented in “Investment securities (at fair value)” on the Company’s consolidated balance sheets. During the year ended December 31, 2024, the Company sold all of its debt securities, as such, as of December 31, 2024, the balance of these securities was $ 0 . As of December 31, 2023, the fair value of these securities was $ 0.8 million. The cost basis of these securities was $ 1.6 million.
4. Loans and Allowance for Credit Losses
Loans include loans held for investment that are accounted for at amortized cost net of allowance for credit losses and loans held for sale that are accounted for at the lower of cost or market net of a valuation allowance. The classification for a loan is based on management’s strategy for the loan.
F-22
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans held for investment
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 Connecticut, New York 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 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.
As of December 31, 2024, and 2023, the Company had 157 and 311 loans held for investment, respectively.
Loans held for sale
The Company offers mortgage notes receivable to be sold in real estate capital markets. The Company does not originate loans for the use of loans held for sale, as these loans were a part of a non-recurring event of being transferred from loans held for investment to loans held for sale. As of December 31, 2024, the Company maintained 11 loans held for sale with a gross outstanding principal balance of $ 15.9 million, of which had an aggregate valuation allowance of $ 4.9 million in connection with pricing based on lower of cost or market. As of December 31, 2024, such loans were on nonaccrual status and in pending/pre-foreclosure. There were no such loans held for sale as of December 31, 2023.
Loan Sale
In October 2024. the Company retained Mission Capital, a subsidiary of Marcus and Millichap, which is a real estate capital markets firm, as our sole and exclusive advisor for the proposed sale of a pool of mortgage loans. A majority of these loans were classified as “non-accrual,” meaning payments of interest owed are more than 90 days overdue. In December 2024, the Company entered into certain Purchase and Sale Agreements with three third party purchasers related to certain non-performing loans that were held for sale. The Company accounted for the transfer of financial assets as a sale, recognizing a loss on sale of $ 22.0 million, with total net cash proceeds from the sale of $ 36.1 million and the derecognition of loans held for sale of $ 55.8 million. The Company has no continuing involvement with the transferred loan assets after the date of transfer and did not retain any interest in the transferred assets. The loans were sold to the purchasers without recourse. In connection with the sale, the Company incurred a loss of $ 19.7 million on principal and $ 2.3 million on charges due from such loans, which is presented on the consolidated statement of operations in loss on sale of loans. During the sale process, the Company removed $ 15.9 million of loans that were initially included in the sale, and these remain as loans held for sale as noted above.
Loan portfolio
As of December 31, 2024, and 2023, loans held for investment on nonaccrual status had an outstanding principal balance of $ 87.0 million and $ 84.6 million, respectively. The nonaccrual loans are inclusive of loans pending foreclosure and loans held for sale. For the year ended December 31, 2024 and 2023, $ 0.7 million and $ 0.6 million of interest income was recorded on nonaccrual loans due to payments received, respectively. As of December 31, 2024, and 2023, the Company had direct reserves on outstanding principal of $ 13.3 million and $ 5.2 million, respectively. The below table summarizes the Company’s loan portfolio by the past due status:
Loans held for investment
(in thousands)
Current
30-59 days past due
60-89 days past due
Greater than 90 days
Total
As of December 31, 2024
$
223,513
$
49,460
$
16,936
$
87,082
$
376,991
As of December 31, 2023
$
332,212
$
78,577
$
3,855
$
84,591
$
499,235
F-23
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023, the aggregate amounts of loans funded by the Company were $ 134.3 million and $ 204.9 million, respectively, offset by principal repayments of $ 191.0 million and $ 167.0 million, respectively.
As of December 31, 2024, the Company’s mortgage loan portfolio includes loans ranging in size up to $ 42.9 million with stated interest rates ranging from 6.5 % to 15.0 %. The default interest rate is generally 18 % but could be more or less depending on state usury laws and other considerations deemed relevant by the Company.
As of December 31, 2024 and 2023, the Company had one borrower representing 14.0 % and 10.1 % of the outstanding mortgage loan portfolio, or $ 55.0 million and $ 50.4 million, respectively.
Deferred loan fees
As of December 31, 2024 and 2023, the Company had $ 2.0 million and $ 4.6 million of deferred loan fee revenue relating to loans held for investment, respectively. There were no such deferred fees for loans held for sale as of December 31, 2024 and 2023. In-line with the Company’s accounting policy for revenue recognition, origination, modification, extension and construction servicing fee revenue is collected at loan funding and is recognized ratably over the contractual life of the loan in accordance with FASB ASC 310 (Receivables). In accordance with FASB ASC 310-20-45-1, the Company has presented deferred loan fees net of the related loan balance on its consolidated balance sheets. This presentation reflects the net amount of revenue that is expected to be recognized after considering the outstanding loan balance associated with certain customer arrangements. This presentation aligns with the guidance in FASB ASC 310-20, which permits the net presentation of loan balances with deferred loan fees when the loan is associated with the future performance obligations of the Company. The loan is considered an integral part of the transaction, and as such, the net amount more accurately reflects the remaining obligations of the Company to the customer, as well as the revenue to be recognized.
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 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
The below table represents the financial statement line items that are impacted by the Allowance for Credit Losses for the year ended December 31, 2024:
Balance as of
Provision for credit
Balance as of
December 31, 2023
losses related to loans
Charge-offs
December 31, 2024
(in thousands)
Loans
$
7,523
$
22,405
$
( 11,458 )
$
18,470
Interest and fees receivable
902
2,231
—
3,133
Due from borrower
352
1,877
( 1,094 )
1,135
Unfunded commitments
509
415
—
924
Total Allowance for credit losses
$
9,286
$
26,928
$
( 12,552 )
$
23,662
The below table represents the financial statement line items that are impacted by the CECL allowance:
Allowance for
credit losses on
Adoption as
loans – pre-
Provision for credit
Balance as of
of January 1, 2023
adoption
losses related to loans
Charge-offs
December 31, 2023
(in thousands)
Loans
$
1,921
$
105
$
5,497
$
—
$
7,523
Interest receivable
26
782
94
—
902
Due from borrower
21
338
10
( 17 )
352
Unfunded commitments
522
—
( 13 )
—
509
Total CECL allowance
$
2,490
$
1,225
$
5,588
$
( 17 )
$
9,286
F-24
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the loans held for investment allowance for credit losses for the year ended December 31, 2024:
Allowance for credit losses
Allowance for credit losses
as of
Provision for credit losses
as of
December 31,
related to
December 31,
(in thousands)
2023
loans
Charge-offs
2024
Geographical Location
New England
$
5,764
$
13,859
$
( 6,779 )
$
12,844
Mid-Atlantic
1,324
533
—
1,857
South
435
6,046
( 4,679 )
1,802
West
—
1,967
—
1,967
Total
$
7,523
$
22,405
$
( 11,458 )
$
18,470
The following table summarizes the activity in the loans held for investment allowance for credit losses from adoption on January 1, 2023, through December 31, 2023:
Allowance for credit losses
Allowance for credit losses
Provision for credit losses
as of
on loans-
Adoption of ASU
related to
December 31,
(in thousands)
re-adoption
2016-13
loans held for investment
Charge-offs
2023
Geographical Location
New England
$
105
$
1,302
$
4,357
$
—
$
5,764
West
—
7
( 7 )
—
—
South
—
402
33
—
435
Mid-Atlantic
—
210
1,114
—
1,324
Total
$
105
$
1,921
$
5,497
$
—
$
7,523
The following table presents charge-offs by fiscal year of origination as of the year ended December 31, 2024:
2024
2023
2022
2021
2020
Prior
Total
(in thousands)
Current period charge-offs
$
—
$
—
$
5,550
$
5,897
$
11
$
—
$
11,458
Total
$
—
$
—
$
5,550
$
5,897
$
11
$
—
$
11,458
Presented below is the Company’s loans portfolio by geographical location:
December 31, 2024
December 31, 2023
(in thousands)
Carrying Value
% of Portfolio
Carrying Value
% of Portfolio
Geographical Location
Loans held for investment:
New England
$
179,421
47.6
%
$
232,437
46.6
%
Mid-Atlantic
42,304
11.2
%
4,101
0.8
%
South
151,165
40.1
%
163,409
32.7
%
West
4,101
1.1
%
99,288
19.9
%
Total
376,991
100.0
%
499,235
100.0
%
F-25
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables allocate the carrying value of the Company’s loan portfolio based on credit quality indicators in assessing estimated credit losses and vintage of origination at the dates indicated:
December 31, 2024
Carrying
FICO Score (2) (in thousands)
Value
2024
2023
2022
2021
2020
Prior
Loans held for investment:
Under 500
$
140
$
140
$
—
—
$
—
$
—
$
—
501-550
2,860
—
—
—
1,060
—
1,800
551-600
7,094
1,222
290
2,170
1,816
636
960
601-650
28,779
8,432
3,347
1,798
7,411
6,149
1,642
651-700
35,711
4,250
7,177
10,302
12,079
660
1,243
701-750
159,575
6,275
40,459
11,982
97,980
1,023
1,856
751-800
124,599
26,465
32,016
36,280
28,427
1,411
—
801-850
18,233
—
415
17,818
—
—
—
Total
376,991
$
46,784
$
83,704
80,350
$
148,773
$
9,879
$
7,501
(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, 2023
Year Originated (1)
Carrying
FICO Score (2) (in thousands)
Value
2023
2022
2021
2020
2019
Prior
Under 500
$
1,764
$
216
$
—
$
—
$
—
$
—
$
1,548
501-550
6,555
2,331
1,440
1,864
—
$
362
558
551-600
33,723
15,019
9,839
6,854
1,127
$
337
547
601-650
103,601
16,053
26,981
52,073
3,988
$
4,187
319
651-700
97,284
17,862
40,318
30,203
3,662
$
3,015
2,224
701-750
167,977
19,935
51,276
83,946
7,411
$
2,901
2,508
751-800
64,313
14,461
20,806
27,027
592
$
689
738
801-850
24,018
865
23,096
—
—
$
—
57
Total
499,235
$
86,742
$
173,756
$
201,967
$
16,780
$
11,491
$
8,499
(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.
Loan modifications made to borrowers experiencing financial difficulty
In certain situations, the Company may provide loan modifications to borrowers experiencing financial difficulty. These modifications may include term extensions, and adding unpaid interest, charges and taxes to the principal balance intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company generally receives additional collateral as part of extending the terms of the loan for borrowers experiencing financial difficulty.
The Company monitors the performance of loans modified to borrowers experiencing financial difficulty. The Company considers loans that are 90 days past due to be in payment default.
F-26
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents loan modifications made to borrowers experiencing financial difficulty:
Year Ended December 31, 2024
% of Total
Carrying Value of
(in thousands)
Carrying Value
Loans held for investment, net
Financial Effect
Loans modified during the period ended
Term extension
$
108,045
30.1
%
A weighted average of 11.5 months were added to the life of the loans
Principal modification, with no term extension
$
12,173
3.4
%
Unpaid interest/taxes/charges added to principal balance
The Company monitors the performance of loans modified to borrowers experiencing financial difficulty. The table below presents the performance of loans that have been modified in the last 12 months to borrowers experiencing financial difficulty. The Company considers loans that are 90 days past due to be in payment default.
Year Ended December 31, 2024
(in thousands)
Current
90-119 days past due
120+ days past due
Total
Loans modified during the period ended
Term extension
$
61,145
$
250
$
46,345
$
108,045
Principal modification, with no term extension
$
12,173
$
—
$
—
$
12,173
The Company has committed to lend additional amounts totaling approximately $ 23.1 million to borrowers experiencing financial difficulty. Of the loans that were modified that experienced financial difficulties during the year, six loans defaulted within twelve months of the modification. These loans had an aggregate outstanding balance of $ 5.7 million which represented 1.6 % of the portfolio. Of the loans that were modified that experienced financial difficulties during the year, ten loans with an outstanding principal balance of $ 12.2 million, experienced rate decreases due to the modification. The change in the rate was taking the loans off default rate.
The table below presents loan modifications made to borrowers experiencing financial difficulty:
Year Ended December 31, 2023
% of Total
Carrying Value of
(in thousands)
Carrying Value
Loans held for investment, net
Financial Effect
Loans modified during the period ended
Term extension
$
77,138
15.7
%
A weighted average of 16.7 months were added to the life of the loans
Principal modification, with no term extension
$
20,342
4.1
%
Unpaid interest/taxes/charges added to principal balance
F-27
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company monitors the performance of loans modified to borrowers experiencing financial difficulty. The table below presents the performance of loans that have been modified in the last 12 months to borrowers experiencing financial difficulty. The Company considers loans that are 90 days past due to be in payment default.
Year Ended December 31, 2023
(in thousands)
Current
90-119 days past due
120+ days past due
Total
Loans modified during the period ended
Term extension
$
73,037
$
—
$
4,101
$
77,138
Principal modification, with no term extension
$
18,777
$
1,565
$
—
$
20,342
As of December 31, 2023, the Company had committed to lend additional amounts totaling approximately $ 18.7 million to borrowers experiencing financial difficulty. Of the loans that were modified that experienced financial difficulties during the year, one loan defaulted within twelve months of the modification. This loan had an outstanding balance of $ 1.6 million, which represented 0.3 % of the portfolio. Of the loans that were modified that experienced financial difficulties during the year, fourteen loans with an aggregate outstanding principal balance of $ 29.1 million, experienced rate decreases due to the modification. The change in the rate was taking the loans off default rate.
5. Investment in Rental Real Estate, net
For the years ended December 31, 2024 and 2023, investment in rental real estate, net consisted of the following:
Investment in Rental
Year Ending December 31, 2024
Cost
Accumulated Depreciation
Real Estate, Net
(in thousands)
Land
$
4,557
$
—
$
4,557
Building
4,936
( 154 )
4,782
Site improvements
359
( 30 )
329
Tenant improvements
1,223
—
1,223
Construction in progress
3,141
—
3,141
Total
$
14,216
$
( 184 )
$
14,032
Investment in Rental
Year Ending December 31, 2023
Cost
Accumulated Depreciation
Real Estate, Net
(in thousands)
Land
$
3,957
$
—
$
3,957
Building
4,936
( 31 )
4,905
Site improvements
359
( 6 )
353
Tenant improvements
1,183
—
1,183
Construction in progress
157
—
157
Total
$
10,591
$
( 37 )
$
10,554
Building and site improvements are being depreciated using the straight-line method over its estimated useful life of 40 years and 15 years , respectively. Tenant improvements are amortized over the life of the respective lease using the straight-line method. Lease in-place intangible assets, deferred leasing costs and acquired below-market leases are amortized on a straight-line basis over the respective life of the lease. For the year ended December 31, 2024, depreciation and amortization related to the asset was $ 0.1 million , which is presented in “Other expenses” on the Company’s consolidated Statements of Operations. Tenant improvements and other intangibles associated with the tenant are not being amortized until the commencement of the lease which is not until 2025.
Additionally, the Company leases space to a tenant under an operating lease. The lease provides for the payment of fixed base rent payable monthly in advance and periodic step-ups in rent over the term of the lease and a pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. The lease also provides for free rent and a tenant improvement allowance of $ 2.7 million. The lease commences February 2025 with a cash rent abatement period of 425 days.
F-28
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2024, future minimum rents under non-cancelable operating leases were as follows:
Years Ending December 31,
Amount
(in thousands)
2025
$
—
2026
1,040
2027
1,269
2028
1,294
2029
1,320
Thereafter
8,741
Total
$
13,664
As of December 31, 2024, estimated annual amortization of acquired below-market lease intangible is as follows:
Years Ending December 31,
Amount
(in thousands)
2025
$
66
2026
66
2027
66
2028
66
2029
66
Thereafter
335
Total
$
665
As of December 31, 2024, estimated annual amortization of acquired in-place lease intangible is as follows:
Years Ending December 31,
Amount
(in thousands)
2025
$
57
2026
57
2027
57
2028
57
2029
57
Thereafter
283
Total
$
568
As of December 31, 2024, estimated annual amortization of deferred leasing costs is as follows:
Years Ending December 31,
Amount
(in thousands)
2025
$
39
2026
39
2027
39
2028
39
2029
39
Thereafter
192
Total
$
387
In addition, the Westport Purchase Agreement contains a provision requiring the payment of an Additional Purchase Price, as defined, upon the earlier to occur of:
● the Company closing on any construction financing on the Project (as defined); or
F-29
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
● twelve months following receipt of all zoning and other state and municipal permits and approvals necessary to construct certain residential units (as defined).
These payments represent contingent consideration in connection with this acquisition, requiring accrual when the payments are deemed probable and reasonably estimable. In January 2024, the Company submitted a proposal to the town of Westport for eight market rate residential units and two affordable rate units. Those units were approved in March 2024, subject to a 30-day appeal period. In April 2024, the 30-day appeal period for the Westport Asset land approval expired, and the Company deemed these events which would give rise to a payment of Additional Purchase Price allocated to land to be considered probable. Accordingly, the agreed payment of $ 0.1 million per certain approved and sold or permitted market rate residential units has been recognized. The expected payment is $ 0.6 million and has been accrued as of December 31, 2024 and is included in Accounts payable and accrued liabilities on the consolidated balance sheets included in the accompanying consolidated financial statements.
6. Real Estate Owned (REO)
Property acquired through foreclosure are included on the consolidated balance sheets as real estate owned and further categorized as held for sale or held for rental, described in detail below.
As of December 31, 2024, and 2023, real estate owned, net totaled $ 18.6 million and $ 3.5 million, respectively. During the year ended December 31, 2024, the Company’s real estate owned portfolio recorded an impairment loss of $ 0.5 million compared to an impairment loss of $0.8 million in 2023, which is considered a level 3 non-recurring fair market value adjustment.
The following table presents the Company’s REO as of December 31, 2024 and 2023:
Year Ended
December 31,
2024
2023
(in thousands)
Real estate owned at the beginning of year
$
3,462
$
5,216
Principal basis transferred to real estate owned
28,640
1,756
Charge-off’s on principal transferred
( 11,361 )
—
Charges and building improvements
509
230
Proceeds from sale of real estate owned
( 2,613 )
( 3,040 )
Impairment loss
( 492 )
( 794 )
Gain on sale of real estate owned
429
94
Balance at end of year
$
18,574
$
3,462
As of December 31, 2024, REO included $ 0.8 million of real estate held for rental and $ 17.8 million of real estate held for sale. As of December 31, 2023, REO included $ 0.8 million of real estate held for rental and $ 2.7 million of real estate held for sale.
Properties Held for Sale
During the year ended December 31, 2024, the Company sold seven properties held for sale and recognized an aggregate gain of $ 0.4 million. During the year ended December 31, 2023, the Company sold seven properties held for sale and recognized an aggregate gain of $ 0.1 million. Such gains are included in, “Loss (gain) on sale of real estate owned and property and equipment, net” on the Compnay’s consolidated Statements of Operations.
Properties Held for Rental
As of December 31, 2024, one property, a commercial building, was held for rental. The tenant signed a 5-year lease that commenced on August 1, 2021.
F-30
Table of Contents
SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2024, future minimum rents under this lease were as follows:
Years Ending December 31,
Amount
(in thousands)
2025
$
53
2026
31
Total
$
84
7. Other Assets
As of December 31, 2024, and December 31, 2023, other assets consist of the following:
December 31, 2024
December 31, 2023
(in thousands)
Prepaid expenses
$
575
$
511
Other receivables
1,793
1,923
Other assets
190
538
Notes receivable
2,130
4,508
Deferred leasing cost
387
387
Leases in place intangible
568
568
Goodwill
391
391
Intangible asset – trade name
130
130
Total
$
6,164
$
8,956
8. Line of Credit, Mortgage Payable, and Churchill 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. During the second quarter of 2024, the Company sold all of its investment securities that collateralized the line of credit. As such, the balance of the line of credit as of December 31, 2024, was $ 0 . At December 31, 2023, the total outstanding balance on the Wells Fargo credit line was $ 26.8 million.
Line of Credit – Needham Bank
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 (“Needham”) for the lenders party thereto (the “Lenders”) with respect to a $ 45 million revolving credit facility (the “Needham Credit Facility”). Under the Credit Agreement, the Company also had the right to request an increase in the size of the Needham Credit Facility up to $ 75 million, subject to certain conditions, including the approval of the Lenders. As of September 8, 2023, the Needham Credit Facility was increased to $ 65 million.
As of December 31, 2024 and December 31, 2023, the total outstanding principal balance on the Needham Credit Facility was $ 40.0 million and $ 35.0 million, respectively, with an interest rate of 7.25 % and 8.25 %, respectively.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans under the Needham 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 Needham Credit Facility are secured by a first priority lien on virtually all of the 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 under the Churchill Facility (as defined below). The Needham Credit Facility expires March 2, 2026, but the Company has a right to extend the term for one year upon the consent of Needham 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 is due and payable on the expiration date. The Company may terminate the Needham Credit Facility at any time without premium or penalty by delivering written notice to Needham at least ten ( 10 ) days prior to the proposed date of termination. The Needham 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 not less than 1.40 to 1.0 , tested on a trailing-twelve-month basis at the end of each fiscal quarter; (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 %.
As of December 31, 2024, the Company was not in compliance with the debt service coverage ratio covenant described above.
On March 20, 2025, we terminated our existing Needham Credit Facility and replaced it with a new Credit Facility with Needham. Except as described below, the new Credit Facility is identical to the old Credit Facility in all material respects:
● First, under the new agreement the borrower is SN Holdings LLC, a Connecticut limited liability company formed and wholly owned by Sachem Capital Corp. for the sole purpose of acting as the borrower under the new agreement. Sachem Capital Corp. is the guarantor of all SN Holdings’ obligations under the new agreement.
● Second, SN Holdings, in its capacity as borrower, granted Needham a lien on all its assets. SN Holdings is required to maintain assets equal to 2 times of the outstanding balance on the new credit facility. In addition, SN Holdings is required to collaterally assign to Needham mortgage loans having an outstanding principal balance in an amount no less than the greater of (i) $ 30 million and (ii) the aggregate principal outstanding principal balance on the facility.
● Third, Sachem Capital Corp., in its capacity as guarantor, agreed to grant Needham a blanket lien on all its assets. However, Needham is required to release its lien at Sachem’s request to facilitate other financing at the Sachem Capital Corp. and subsidiaries level.
● Fourth, the size of the new credit facility is a committed facility of up $ 50 million, subject to borrowing base limitations and facility covenant compliance.
● Fifth, the new Needham Credit Facility retained the same maturity of March 2, 2026 as original term with the option to extend one year provided we are in compliance with all the covenants and other terms and conditions of the new Needham Credit Facility.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Simultaneously with the execution and delivery of the Credit, Security and Guaranty Agreement, dated as of March 20, 2025, among SN Holdings, Sachem and Needham, which governs the new Credit Facility, Sachem Capital Corp. repaid the entire outstanding balance on the old credit facility, $ 39.6 million, and SN Holdings drew $ 36.1 million on the new credit facility, reducing our outstanding indebtedness by $ 3.5 million. As of March 20, 2025, the Company was no longer in violation of any Credit Facility covenants.
Mortgage Payable
In 2021, the Company obtained a $ 1.4 million adjustable-rate mortgage loan from New Haven Bank (the “Old NHB Mortgage”) of which $ 750,000 was funded at closing to reimburse the Company for out-of-pocket costs relating to the acquisition of the property located at 568 East Main Street, Branford, Connecticut, which now serves as the Company’s headquarters. The Old 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. The Old NHB Mortgage was a non-recourse loan, secured by a first mortgage lien on the Company’s prior headquarters, which was located at 698 Main Street, Branford, Connecticut and the property located at 568 East Main Street, Branford, Connecticut.
On February 28, 2023, the Company refinanced the Old NHB Mortgage with an adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) in the original principal amount of $ 1.66 million. The 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 loan are amortized based on a 20-year amortization schedule. Over the next five years, the Company is scheduled to make principal payments ranging from $ 47,000 to $ 59,000 annually, with the remaining balance due thereafter. The unpaid principal amount of the loan and all accrued and unpaid interest are due and payable in full on March 1, 2038. The loan is a non-recourse obligation, secured by a first mortgage lien on the property located at 568 East Main Street, Branford, Connecticut.
As of December 31, 2024 and 2023, the total outstanding principal balance on the NHB Mortgage was $ 1.0 million and $ 1.1 million, respectively.
Churchill MRA Funding I LLC Repurchase Financing Facility
On July 21, 2021, the Company consummated a $ 200 million master repurchase financing facility (“Churchill Facility”) with Churchill MRA Funding I LLC (“Churchill”), a subsidiary of Churchill Real Estate, a vertically integrated real estate finance company based in New York, New York. Under the terms of the Churchill 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 factors. 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 Churchill Facility is equal to the sum of (a) the greater of (i) 0.25 % and (ii) the 90-day SOFR (which replaced the 90 -day LIBOR) plus (b) 3 %- 4 %, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time. As of December 31, 2024 and 2023, the effective interest rate charged under the facility was 8.69 % and 9.47 %, respectively.
The Churchill Facility is subject to other terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements. 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 Churchill 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.
The Company uses the proceeds from the Churchill Facility to finance the continued expansion of its lending business and for general corporate purposes.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the outstanding balances under the Churchill Facility agreement:
December 31, 2024
December 31, 2023
Total
Total
(in thousands)
Outstanding
Rate
Outstanding
Rate
Repurchase Agreement
$
33,708
8.69
%
$
26,461
9.47
%
Total
$
33,708
$
26,461
The following table summarizes loans held for investment pledged as collateral under the Churchill Facility agreement:
December 31, 2024
December 31, 2023
Total Carrying Value
Total Carrying Value
(in thousands)
Loans Pledged
Number of Loans
Loans Pledged
Number of Loans
Loans held for investment sold under the repurchase agreement
$
66,365
17
$
50,635
14
Total
$
66,365
$
50,635
The following table summarizes the contractual maturities for loans held for investment sold under the repurchase agreement:
December 31, 2024
December 31, 2023
(in thousands)
Maturing within 1 year
$
56,050
$
33,389
After 1 but within 2 years
10,315
17,246
Total
$
66,365
$
50,635
The NHB Mortgage and the Churchill Facility contain cross-default provisions.
9. Unsecured Notes Payable
At December 31, 2024, the Company had an aggregate of $ 230.2 million of unsecured, unsubordinated notes payable outstanding, net of $ 3.7 million of deferred financing costs (collectively, the “Notes”).
(i) Notes having an aggregate principal amount of $ 56.4 million bearing interest at 7.75 % per annum and maturing September 30, 2025 (the “September 2025 Notes”);
(ii) Notes having an aggregate principal amount of $ 51.8 million bearing interest at 6.0 % per annum and maturing December 30, 2026 (the “December 2026 Notes”);
(iii) Notes having an aggregate principal amount of $ 51.9 million bearing interest at 6.0 % per annum and maturing March 30, 2027 (the “March 2027 Notes”);
(iv) Notes having an aggregate principal amount of $ 30.0 million bearing interest at 7.125 % per annum and maturing June 30, 2027 (the “June 2027 Notes”); and
(v) Notes having an aggregate principal amount of $ 40.3 million 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 “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, all the Notes are callable at any time.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the future principal payments on the notes payable as of December 31, 2024:
Years ending December 31,
Amount
(in thousands)
2025
$
56,364
2026
51,750
2027
122,125
Total principal payments
230,239
Deferred financing costs
( 3,713 )
Total notes payable, net of deferred financing costs
$
226,526
The estimated amortization of the deferred financing costs as of December 31, 2024 is as follows:
Years ending December 31,
Amount
(in thousands)
2025
$
1,808
2026
1,410
2027
495
Total deferred costs
$
3,713
10. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities include the following:
December 31, 2024
December 31, 2023
(in thousands)
Accounts payable and accrued expenses
$
2,928
$
1,331
Allowance for credit losses on unfunded commitments
924
509
Accrued interest
525
482
Total
$
4,377
$
2,322
11. Fee Income from Loans
For the years ended December 31, 2024 and 2023, fee income from loans consists of the following:
Year Ended
December 31,
2024
2023
(in thousands)
Origination and modification fees
$
5,088
$
5,941
Extension fees
990
1,236
Late and other fees
331
719
Processing fees
96
121
Construction servicing fees
457
1,015
Legal fees
250
432
Other fees
1,382
1,235
Total
$
8,594
$
10,699
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies
Unfunded Commitments
At December 31, 2024, the Company had future funding obligations on loans held for investment totaling $ 49.9 million and obligations relating to investments in limited liability companies totaling $ 4.4 million, which can be drawn by the borrowers when the conditions relating thereto have been satisfied. The unfunded commitments will be funded from loan payoffs and additional drawdowns under existing and future credit facilities and proceeds from sale of debt and equity securities. The Company’s unfunded commitments are subject to allowances under the scope of CECL, see Note 4 – Loans and Allowance for Credit Losses for further details.
Litigation
The Company is subject to various pending and threatened legal proceedings or other matters arising out of the normal conduct of business in which claims for monetary damages are asserted. As of the date of this report, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters will be material to the Company’s consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such matters. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of losses for matters where an exposure is not currently estimable or considered probable is not believed to be material in the aggregate. This is based on information currently available to the Company and involves elements of judgment and significant uncertainties. While the Company does not believe that the outcome of pending or threatened litigation or other matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause the Company to incur additional expenses, which could be significant, and possibly material, to the Company’s results of operations in any future period.
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 December 31, 2024, there were two such properties. The unpaid principal balance on the properties that are subject to these proceedings was $ 1.9 million.
13. 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 December 31, 2024, and 2023, loans to known shareholders totaled $ 17.2 million and $ 25.6 million, respectively, which is included in loans held for investment, net in the Company’s accompanying consolidated balance sheets. Of the $ 17.2 million and $ 25.6 million loans to known shareholders as of December 31, 2024, and 2023, $ 17.0 million and $ 25.0 million, respectively, related to Mod 21, LLC, which is a wholly owned entity of the Company’s Senior Vice President of Asset Management and Vice President of Asset Management. All of such loans are performing, and interest income earned on all related party loans for the years ended December 31, 2024 and 2023 totaled $ 1.4 million and $ 2.4 million, respectively.
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 years ended December 31, 2024 and 2023, she received compensation of $ 0.2 million and $ 0.2 million, respectively.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Concentrations 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 limited liability companies, 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 (FDIC) up to $ 250,000 per depositor.
Concentrations of credit risk related to loans geographical location and property type may be affected by changes in economic or other conditions of the particular geographic area or particular asset type that collateralize the Company’s mortgage loans. For further details see Note 4 – Loans and Allowances for Credit Losses.
Credit risks associated with the Company’s mortgage loan portfolio and related interest receivable are described in Note 4 – Loans and Allowance for Credit Losses.
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 December 31, 2024 was 781,262 . The number of shares issuable to any one individual in a plan year is also limited to 100,000 shares, subject to adjustment as provided for in the Plan.
The table below summarizes the Company’s awards granted, forfeited, or vested under the 2016 Plan during the years ended December 31, 2024 and 2023:
Restricted Stock
Weighted Average
Number of Shares
Grant Date Fair Value
Unvested shares at December 31, 2022
189,596
$
4.94
Granted
196,056
3.87
Vested
( 157,483 )
4.50
Forfeited
( 5,333 )
3.54
Unvested shares at December 31, 2023
222,836
3.74
Granted
212,857
3.86
Vested
( 195,071 )
4.39
Forfeited
( 333 )
2.56
Unvested shares at December 31, 2024
240,289
$
1.35
During the years ended December 31, 2024 and 2023, the Company granted an aggregate of 212,857 and 196,056 , respectively, of restricted Common Shares under the Plan, including restricted Common Shares granted to the Company’s Chief Executive Officer (see Note 12). The fair value of each block of shares at the time of grant was approximately $ 0.8 million.
With respect to the restricted Common Shares granted during the year ended December 31, 2024, (i) 33,666 shares vested on May 9, 2024; (ii) 37,285 shares vested on January 1, 2025; (iii) 33,667 shares will vest on May 1, 2025, and 2026 , respectively; and (iv) 37,286 shares will vest on January 1, 2026 and 2027 , respectively.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation for the years ended December 31, 2024 and 2023, was $ 0.9 million and $ 0.8 million, respectively. As of December 31, 2024, there was unrecognized stock-based compensation expense of $ 0.7 million. Additionally, during the years ended December 31, 2024 and 2023, the Company had 333 and 5,333 , respectively, of unvested restricted Common Shares forfeited to the Company as a result of the ending of the relationship with former employees.
Employee Benefits
On April 16, 2018, the Board 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 years ended December 31, 2024, and 2023, the 401(k) Plan expense was $ 0.1 million and $ 0.2 million, respectively, and is included under Compensation and employee benefits in the Consolidated Statements of Operations.
16. Equity
On August 24, 2022, the Company filed a prospectus supplement to its Form S-3 Registration Statement covering the sale of up to $ 75.0 million of its Common Shares and shares of its Series A Preferred Stock (as defined in Note 18 below) with an aggregate liquidation preference of up to $ 25.0 million in an “at-the market” offering, which terminated in February 2025 by its own terms (the “ATM Offering”). On June 17, 2024, the Company filed a new prospectus supplement (the “New Prospectus Supplement”) which modified the ATM Offering by reducing the amount of Common Shares the Company may offer and sell to up to an aggregate of $ 48.7 million, including the Common Shares the Company has already sold in the ATM Offering prior to the date of the New Prospectus Supplement. All the other terms of the ATM Offering remained the same.
During the year ended December 31, 2024, the Company sold 568,711 Common Shares with gross proceeds of $ 2.1 million and sold an aggregate of 276,825 shares of Series A Preferred Stock having an aggregate liquidation preference of $ 6.9 million, realizing gross proceeds of $ 5.8 million (representing a discount of 15.9 % from the liquidation preference). The Company’s issuance costs for both Common Shares and Series A Preferred Stock shares sold during the year ended December 31, 2024 were $ 0.1 million. During the year ended December 31, 2023, the Company sold an aggregate of 126,923 shares of Series A Preferred Stock having an aggregate liquidation preference of $ 3.2 million, realizing gross proceeds of $ 2.6 million (representing a discount of 17.6 % from the liquidation preference) and an aggregate of 5,546,891 Common Shares, realizing net proceeds of $ 20.5 million. At December 31, 2024, $ 49.9 million of Common Shares and shares of Series A Preferred Stock having a liquidation preference of $ 16.6 million were available for future sale under the ongoing “at-the market” offering. In February 2025, the ATM Offering terminated by its own terms.
In October 2022, the Board adopted a stock repurchase plan (the “Original Repurchase Plan”), pursuant to which the Company may repurchase up to an aggregate of $ 7.5 million of its Common Shares. Under the Original Repurchase Plan, share repurchases were made from time to time on the open market at prevailing market prices or in negotiated transactions off the market in accordance with applicable federal securities laws, including Rule 10b-18 and 10b5-1 of the Exchange Act. The Original Repurchase Plan expired on October 9, 2024.
Effective on October 10, 2024, the Board replaced the Original Repurchase Plan with a new stock repurchase plan (the “New Repurchase Plan”). Under the New Repurchase Plan, the Company may repurchase up to an aggregate of $ 5,802,959 (the amount remaining under the Original Purchase Plan) of Common Shares and share repurchases will be made from time to time on the open market at prevailing market prices in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act.
During the years ended December 31, 2024 and 2023, the Company repurchased an aggregate of 581,745 and 71,000 Common Shares at a total cost of $ 1.5 million and $ 0.2 million, respectively.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Limited Liability Company Investments
The following table details the carrying value of each investment reflected on our consolidated balance sheets as of December 31, 2024:
Ownership
Carrying
Investment
Percentage
Value
(in thousands )
Shem Creek Capital Fund V LLC
7.6
%
$
1,143
Shem Creek Capital Fund VI LLC
9.9
%
4,290
Shem Creek Capital Fund VII LLC
16.2
%
3,598
Shem Creek Sachem V LLC
49.0
%
2,569
Shem Creek Sachem VI LLC
45.9
%
24,756
Shem Creek Sachem 100 LLC
100.0
%
12,586
Shem Creek Capital, LLC
20.0
%
2,500
Cordo CLT Investors LLC
7.2
%
2,500
Total
$
53,942
Shem Creek (“Shem”)
As of December 31, 2024, the Company had invested an aggregate of $ 51.4 million in seven limited liability companies (“LLC’s”) (all of which have elected to be taxed as partnerships). The Company’s interest in each of these entities is both “non-controlling” and lacks the ability for “significant influence” as considered under FASB ASC 810, 321 and 323. The Shem LLC’s are commercial real estate finance companies that provide first mortgage debt capital solutions to local and regional commercial multi-family real estate owners in the Northeastern United States. The Company has no management or voting rights in the operations of any of the Shem Creek LLC’s.
In September 2024, the Company acquired the seventh ownership interest, a 20 % membership interest in Shem Creek Capital, LLC, the management company of all Shem Creek investment vehicles. At close, the Company paid $ 2.5 million in cash. The balance of the purchase price is due and payable on or before September 6, 2025. In February 2025, the Company paid the remaining $ 2.5 million in cash to complete the acquisition of the 20 % membership interest. In addition, the Company has the right to acquire an additional 10 % interest (increasing its stake to 30 %) in two separate 5 % options of $ 1.4 million and $ 1.5 million at any time prior to March 31, 2027. The Company has no management or voting rights of any significance in the operation of the entity, nor any board representation, but is allowed one of three investment committee members of Shem Creek Capital, LLC. The remaining two of three members of the investment committee is comprised of the two members who are also the sole manager of the Shem Creek Capital, LLC entity.
The Company accounts for the funds and the manager investments at the measurement alternative of at cost less impairment, adjusted for observable price changes, because the Company does not manage the fund or management entities in which it holds an interest. The Company has no control by contract or influence over operating and financial policies through member voting rights or deemed to have significant influence over the investments, even though FASB ASC 323-10-30-299-1 would presume such based on membership percentage owned levels being greater than 3 – 5%. The Company has assessed FASB ASC 321, 323 and 810 and has concluded that Predominant Evidence to the Contrary does exist in accordance with FASB ASC 323-10-15-10 based on full context and operations of all the individual LLC operating agreements. The Company’s withdrawal from each limited liability company may only be granted by the manager of Shem.
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SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s investments can be categorized into three fund structures: fund investments, direct loan investments (co-invest vehicles) and the manager investment. The fund investments primarily include investments in two entities that invest in mortgage loans. The direct loan investments are through three entities whereby the Company directly invests in the participation of individual loans. 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 distributions from the entities that are comprised of a preferred return, return of capital, and the incentive fee depending on each loan’s waterfall calculation, as defined by the loan agreements. The Company’s interests in the entities are not redeemable at any time, as its investment will be repaid as the underlying loans are repaid. The Company expects to be repaid on its current investments by December 31, 2027. Shem’s compensation includes senior financing fees, incentive fees, and management fees that are charged to each entity that it manages, including the seven entities in which the Company has an investment. The Company expects to receive quarterly distributions from the respective entities operating cash flows.
For the years ended December 31, 2024 and 2023, the Shem investments generated $ 5.1 million and $ 3.5 million, respectively, of income for the Company.
At December 31, 2024, the Company had unfunded commitments totaling $ 4.4 million in the Shem entities.
Cordo CLT Investors LLC
In September 2024, the Company, through its wholly owned subsidiary Urbane Capital, LLC, initially acquired a 21.6 % interest in Cordo CLT Investors LLC for one time contribution of $ 2.5 million. As the remainder of committed common member equity is received by Cordo CLT Investors LLC, the Company’s membership interest will decline to an expected 7.2 % of total, but as of December 31, 2024, the Company was 11.33 % of total. This entity was formed for the sole purpose of developing a commercial multifamily property in Charlotte, North Carolina. The Company anticipates the project to be completed by the end of 2026. The Company also accounts for this member investment at FASB ASC 321 measurement alternative at cost, less impairment, because the Company does not manage the entity in which it holds an interest and has no contractual control, voting powers or significant influence over the entity’s operating and financial policies of any kind by contract of the operating agreement.
18. 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 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.
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Table of Contents
SACHEM CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Subsequent Events
The Company evaluated subsequent events from January 1, 2025 until the financial statements were issued.
On February 24, 2025 , the board of directors authorized and the Company declared a dividend of $ 0.484375 per share on the Company’s 7.75 % Series A Cumulative Redeemable Preferred Stock (“Series A Preferred”) payable on March 31, 2025 to Series A Preferred shareholders of record on March 15, 2025 . The payment represents the full amount of the dividend accruing from December 30, 2024 through and including March 29, 2025.
On March, 5, 2025 , the Company’s board of directors authorized and declared a quarterly dividend of $ 0.05 per common share to be paid to shareholders of record as of the close of trading on the NYSE American on March 17, 2025 . The dividend is payable on March 31, 2025 .
On March 10, 2025, the Company’s Compensation Committee authorized (i) a grant of 420,168 restricted Common Shares to John L. Villano, which shares had a fair market value on the date of grant of approximately $ 0.5 million; and (ii) a one-time bonus grant of 20,000 restricted Common Shares to each of the Company’s non-employee directors, Arthur Goldberg, Brian Prinz, Leslie Bernhard and Jeffery Walraven. Each of the Company’s non-employee directors, with the except for Mr. Walraven, also had the option, at his or her election, to receive the fair market value equivalent of his or her grant in a lump sum cash payment of $ 23,800 . An aggregate of 60,000 restricted Common Shares were granted to the Company’s non-employee directors, which shares had an aggregate fair market value on the date of grant of approximately $ 71,400 . Ms. Bernhard elected to receive the lump sum cash payment.
The Company identified subsequent to the above March 10, 2025 action of the Company’s Compensation Committee regarding authorization of issuance of 420,168 share of restricted stock to John L. Villano under the effective 2016 Equity Compensation Plan that it had over authorized on the total issuance by 320,168 shares. The over issuance is a result of a specified limitation in the Plan that no more than 100,000 shares of restricted Common Shares may be made subject to awards to a single individual in a single plan year, subject to adjustments as provided. No identified adjustment provisions were deemed applicable. In result of this identification it was also determined that in calendar 2023 and 2024 there were additional similar over issuances of 30,890 and 11,857 , respectively. In total there were 362,915 restricted shares which have been issued in excess of Plan limitations, all of which still remain unvested and restricted. No other plan years have identified any additional over issuances. In an immediate full and in excess of necessary remediation of this matter on March 25, 2025 John L. Villano voluntarily forfeited the 420,168 shares that were granted on March 10, 2025.
See the Needham Credit Facility subsequent event as disclosed in Note 8 – Line of Credit, Mortgage Payable, and Churchill Facility.
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