Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Report. Certain statements in this discussion and elsewhere in this Report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. Actual operating results and financial conditions may differ materially from those anticipated in these forward-looking statements.
Company Overview
Sachem Capital Corp., a New York corporation, established in 2010 and completing an initial public offering in 2017 is a self-managed REIT that specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. We operate our business as one segment. We offer short-term ( i.e ., one to three years), secured, non-bank 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 our 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. Our primary underwriting criteria is a conservative loan to value ratio. In addition, we may make opportunistic real estate purchases and investments apart from our lending activities.
Critical Accounting Policies and Use of Estimates
Preparing our unaudited condensed 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. We base the use of estimates on (a) various assumptions that consider prior reporting results, (b) our 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. See Note 2 – Significant Accounting Policies for further details.
Revenue Recognition
Interest income from commercial loans is recognized, as earned, over the loan period, whereas origination and modification fee revenue on commercial loans are amortized over the term of the respective notes.
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CECL Allowance
We record an allowance for credit losses (“CECL”) in accordance with the CECL standard on our loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics. This methodology replaces the probable incurred loss impairment methodology. In addition, interest and fees receivable and amounts included in due from borrowers, other than reimbursements, which include origination, modification and other fees receivable are also analyzed for credit losses in accordance with the CECL standard, as they represent a financial asset that is subject to credit risk. Further, CECL requires credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. As allowed under the CECL standard that we have adopted, 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 CECL standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the economic environment. We utilize a loss-rate method for estimating current expected credit losses. The loss rate method involves applying a loss rate to a pool of loans with similar risk characteristics to estimate the expected credit losses on that pool of loans. In determining the CECL allowance, we consider various factors including (1) historical loss experience in its portfolio, (2) loan specific losses for loans deemed collateral dependent based on excess amortized cost over the fair value of the underlying collateral, and (3) its current and future view of the macroeconomic environment. We also utilize a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. Loans, interest receivable, due from borrowers, unfunded commitments, and (available-for-sale debt) investment securities are all presented net on the Condensed Consolidated Balance Sheets with expanded disclosures in the notes to the condensed consolidated financial statements. The change in the balances during the reporting period are recorded in the Condensed Consolidated Statements of Operations under the provision for credit losses.
Our Loan Portfolio
The following table highlights certain information regarding our real estate lending activities for the three months ended March 31, 2025 (in thousands, except number of loans and weighted averages):
March 31, 2025
(in thousands, except number
of loans and weighted averages)
Loans disbursed
$
41,308
Loans repaid
$
47,742
Principal of loans transferred to real estate owned
$
410
Number of loans transferred to real estate owned
1
Number of loans held for investment outstanding
143
Gross principal amount of loans held for investment
$
367,860
Weighted average contractual interest rate (1)
12.88
%
Weighted average term to maturity (in months) (2)
4
(1) Includes default interest.
(2) Does not give effect to extensions.
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At March 31, 2025, our outstanding mortgage loan portfolio included loans ranging in size from $35,000 to $42.8 million. The table below gives a breakdown of our loans held for investment by loan size as of March 31, 2025:
Aggregate Gross
Number of
Principal
Amount
Loans
Percentage
Amount
Percentage
(in thousands)
$1,000,000 or less
68
47.6
%
$
27,410
7.5
%
$1,000,001 to $5,000,000
58
40.6
%
132,637
36.1
%
$5,000,001 to $10,000,000
7
4.8
%
44,260
12.0
%
$10,000,001 or more
10
7.0
%
163,553
44.4
%
Total
143
100.0
%
$
367,860
100.0
%
As of March 31, 2025, the primary markets in which we were exposed were Connecticut, Florida, Massachusetts and New York. The table below gives a breakdown of our loans held for investment by state as of March 31, 2025:
Number of
Gross Amount
State
Loans
Percentage
Outstanding
Percentage
(in thousands)
California
1
0.7
%
$
4,101
1.1
%
Connecticut
73
51.0
%
119,013
32.4
%
Florida
19
13.3
%
108,742
29.6
%
Georgia
1
0.7
%
3,840
1.0
%
Maine
1
0.7
%
1,625
0.4
%
Maryland
1
0.7
%
864
0.2
%
Massachusetts
10
7.0
%
53,200
14.5
%
New Jersey
1
0.7
%
2,342
0.6
%
New York
21
14.7
%
32,840
8.9
%
North Carolina
4
2.8
%
7,877
2.1
%
Pennsylvania
2
1.4
%
4,856
1.3
%
Rhode Island
3
2.1
%
1,921
0.5
%
South Carolina
4
2.8
%
12,755
3.5
%
Tennessee
1
0.7
%
12,658
3.5
%
Washington D.C.
1
0.7
%
1,226
0.4
%
Total
143
100.0
%
$
367,860
100.0
%
The following table details our loans held for investment as of March 31, 2025 by year of origination:
Aggregate Gross
Number of
Principal
Year of Origination
Loans
Percentage
Amount
Percentage
(in thousands)
2025
7
4.9
%
$
26,366
7.1
%
2024
31
21.7
%
44,402
12.1
%
2023
27
18.9
%
78,180
21.3
%
2022
28
19.6
%
72,152
19.6
%
2021
31
21.7
%
131,790
35.8
%
2020
5
3.5
%
7,628
2.1
%
2019 and prior
14
9.7
%
7,342
2.0
%
Total
143
100.0
%
$
367,860
100.0
%
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The following tables set forth information regarding the types of properties securing loans held for investment as of March 31, 2025 and December 31, 2024:
March 31, 2025
December 31, 2024
(in thousands)
Aggregate Gross Principal
Aggregate Gross Principal
Amount
Percentage
Amount
Percentage
Residential
$
192,463
52.4
%
$
211,939
56.2
%
Commercial
102,376
27.8
%
95,509
25.3
%
Pre-Development Land
18,939
5.1
%
23,466
6.2
%
Mixed Use
54,082
14.7
%
46,077
12.3
%
Total
$
367,860
100.0
%
$
376,991
100.0
%
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Allowance for Credit Losses
Our allowance for credit losses is influenced by historical loss experience, current exposure by geographical region, current expected credit losses on loans in foreclosure based on fair value less cost to sell, non-performing status, and other supportable forecasts of economic conditions. A loan is considered non-performing once it has been delinquent on its monthly payments past 90 days.
The following table presents the allowance for credit losses against unpaid principal balance of loans held for investment as of March 31, 2025 and December 31, 2024:
March 31, 2025
December 31, 2024
(in thousands)
Percentage of
Percentage of
Aggregate Gross
Respective
Aggregate Gross
Respective
Principal Amount
Allowance
Principal
Principal Amount
Allowance
Principal
Performing – General reserve
$
260,269
$
(4,841)
1.9
%
$
289,910
$
(5,051)
1.8
%
Non-performing – General reserve
21,763
(221)
1.0
%
5,396
(96)
1.8
%
Non-performing – Direct reserves
61,951
(6,954)
11.2
%
57,808
(7,265)
12.6
%
Non-performing in Foreclosure – Direct reserves
23,877
(6,106)
25.6
%
23,877
(6,058)
16.7
%
Total
$
367,860
$
(18,122)
$
376,991
$
(18,470)
For further information, see Note 4 – Loans and Allowance for Credit Losses.
Real Estate Owned
As of March 31, 2025, we owned twenty properties, each of which previously served as collateral for first mortgage loans. One property was acquired during the three months ended March 31, 2025 in connection with foreclosure actions.
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The following table details the carrying value of each of our real estate owned properties reflected on our condensed consolidated balance sheets as of March 31, 2025:
Month of
Carrying
Property Type
Location
Acquisition
Value
(in thousands)
Commercial – Restaurant
Bristol, CT
March 2019
$
750
Land
Bristol, CT
December 2019
1,406
Land
Sturbridge, MA
November 2022
110
Residential – Single Family
Bellingham, MA
December 2023
293
Land
Stamford, CT
May 2024
115
Land
Stamford, CT
May 2024
115
Residential – Multi Family
Westbrook, ME
September 2024
298
Residential – Multi Family
South Portland, ME
September 2024
550
Mixed Use
Casco, ME
September 2024
300
Land
Cape Coral, FL
October 2024
600
Land
Cape Coral, FL
October 2024
900
Land
Cape Coral, FL
October 2024
350
Land
Cape Coral, FL
October 2024
350
Residential – Multi Family
Flagler Beach, FL
October 2024
3,382
Residential – Single Family
Gainesville, FL
November 2024
836
Mixed Use
New London, CT
November 2024
1,750
Land
New London, CT
November 2024
2,500
Commercial – Office
Windsor, CT
December 2024
1,600
Commercial – Office
Windsor, CT
December 2024
2,250
Land
Marathon, FL
January 2025
410
Total
$
18,865
For further information, see Note 6 – Real Estate Owned (REO).
Results of Operations
Three months ended March 31, 2025 compared to three months ended March 31, 2024
Total revenue
Total revenue for the three months ended March 31, 2025 was $11.4 million compared to $16.8 million for the three months ended March 31, 2024, a decrease of $5.4 million, or 31.9%. The change in revenue was primarily due to the cumulative effect of fewer originations over the last fifteen months resulting in a reduction in the unpaid principal balance of loans held for investment in addition to a currently elevated amount of nonperforming loans and real estate owned. On the other hand, income from our preferred membership limited liability company investments increased approximately 71.7%, quarter-over-quarter.
Operating costs and expenses
Total operating expenses for three months ended March 31, 2025 were $10.4 million compared to $12.5 million for the three months ended March 31, 2024,a decrease of $2.1 million or 16.9%. The largest contributors to this decrease were the decreases in interest and amortization of deferred financing fees as a result of the repayment of $58.2 million of aggregate principal amount of our unsecured, unsubordinated notes in 2024, and a aggregate decrease in compensation and employee benefits, provision for credit losses related to loans held for investment, and other expenses totaling $0.9 million, partially offset by $0.01 million increase in general and administrative expenses.
Other income (loss)
For the three month period ended March 31, 2025, we reported a $0.1 million loss on equity securities. For the three month period ended March 31, 2024, we reported a $0.4 million gain on equity securities.
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Net (loss) income attributable to common shareholders and net (loss) income attributable to common shareholders per share
Net loss attributable to common shareholders for the three months ended March 31, 2025 was $0.2 million, or $0.00 per share, compared to net income attributable to common shareholders of $3.6 million, or $0.08 per share, for the three months ended March 31, 2024.
Comprehensive (loss) income
For the three months ended March 31, 2025, we had no transactions which impact comprehensive income. For the three months ended March 31, 2024, we reported a reclassification of unrealized losses to provision for credit losses of $0.2 million reflecting the recognition of unrealized losses on securities held for over one year, which were not considered temporary losses, as well as an unrealized losses on investment securities of $0.3 million.
Book value per common share
The following table sets forth the calculation of our book value per common share (in thousands, except share and per share data):
March 31, 2025
December 31, 2024
Total shareholders’ equity
$
179,339
$
181,651
Series A Preferred Stock ($25 aggregate liquidation preference)
(57,669)
(57,669)
Total shareholders’ equity, net of preferred stock
$
121,670
$
123,982
Number of Common Shares outstanding at period end
47,310,139
46,965,306
Book value per common share
$
2.57
$
2.64
Book value per common share as of March 31, 2025, was $2.57, a decrease of $0.07 from our book value per common share as of December 31, 2024 of $2.64. Such decrease is primarily due to cash dividends declared and paid for the three months ended March 31, 2025 on Common Shares and Series A Preferred Stock totaling $3.5 million, or $0.07 per share.
Liquidity and Capital Resources
Total assets at March 31, 2025 were $491.4 million compared to $492.0 million at December 31, 2024, a decrease of $0.6 million, or 0.1%. The decrease was due primarily to a $9.4 million decrease in loans held for investment, net, partially offset by a $6.3 million increase in cash and $2.4 million increase in investments in real estate, net.
Total liabilities at March 31, 2025 were $312.1 million compared to $310.3 million at December 31, 2024, an increase of $1.8 million, or 0.6%. This increase is primarily due to a $7.8 million increase in our repurchase agreements, partially offset by a $3.9 million decrease in lines of credit, a $1.7 million decrease in accounts payable and accrued liabilities, and a $1.0 decrease in advances from borrowers.
Total shareholders’ equity at March 31, 2025 was $179.3 million compared to $181.7 million at December 31, 2024, a decrease of $2.3 million, or 1.3%. This decrease was due primarily to $3.5 million in dividends paid partially offset by $0.9 million of net income for the period and $0.3 million increase in additional paid-in capital related to stock-based compensation.
Sources and Uses of Funds
Our primary sources of cash include principal and interest payments on mortgage loans and various fees associated with such loans, proceeds from the sales of real property, net proceeds from offerings of equity securities, and borrowings from our credit facilities. Our primary uses of cash include debt service payments (both principal and interest), new originations of loans held for investment, new investments in real estate, dividend distributions to our shareholders, and operating expenses.
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These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below:
Three Months Ended
One Year-Change
Amount
2025
2024
Amount
Percentage
(in thousands)
(in thousands)
Cash and cash equivalents, January 1
$
18,066
$
12,598
$
5,468
43.4
%
Net cash provided by operating activities
191
4,217
(4,026)
(95.5)
%
Net cash provided by investing activities
5,747
4,319
1,428
33.1
%
Net cash provided by (used in) financing activities
410
(2,721)
3,131
115.1
%
Cash and cash equivalents, March 31
$
24,414
$
18,413
$
6,001
30.3
%
For a detailed breakdown of our cash flows during the three months ended March 31, 2025 and 2024, see the statement of cash flows included in our accompanying condensed consolidated financial statements.
We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include funding of loans, dividend payments, interest and principal payments on our indebtedness, including repayment/refinancing of the Notes maturing in September 2025, and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses. Based on this analysis, we believe that our current cash balances, availability on our debt facilities, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.
Our long-term cash needs will include principal and interest payments on outstanding indebtedness maturing late in 2026 and early 2027, preferred stock dividends and funding of new mortgage loans. Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows, refinancing existing debt, and proceeds from sales of real estate owned.
On March 20, 2025, we entered into a new Credit Agreement with Needham Bank, replacing the prior Needham Credit Facility, which was fully repaid and terminated on the same date. The new facility matures on March 2, 2026, and includes an option to extend the term by one year upon satisfaction of certain conditions. Under the new agreement, SN Holdings LLC (“SN Holdings”), our wholly owned subsidiary, serves as the borrower, and Sachem Capital, the parent, serves as guarantor of all obligations. The Needham Credit Facility is secured by a first priority lien on all the assets of SN Holdings, and includes a requirement that SN Holdings maintain assets equal to at least two times the outstanding principal balance under the facility. In addition, SN Holdings is required to collaterally assign to Needham Bank a portfolio of mortgage loans with an outstanding principal balance of no less than the greater of $30 million or the full drawn balance on the facility. Sachem Capital, as guarantor, has also granted Needham a blanket lien on substantially all of its assets, with the ability to request lien releases to facilitate other financings. The Needham Credit Facility, at the subsidiary borrower level, 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 SN Holdings 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 (at the consolidated guarantor level) and availability under the facility equal to or greater than $10 million; and (C) an Asset Coverage Ratio (as defined) of at least 150%. As of March 31, 2025, SN Holdings had borrowed $36.1 million under the facility. The Company was in compliance with all covenants under the new agreement as of March 31, 2025. On April 1, 2025, SN Holdings made a principal payment of $9.9 million, further reducing the outstanding indebtedness to $26.2 million.
A copy of the Credit, Security and Guaranty Agreement, dated as of March 20, 2025, among SN Holdings, Sachem and Needham, is filed as Exhibit 10.8 to this Report.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources.
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Contractual Obligations
As of March 31, 2025, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans and limited liability company investments.
Less than
1 – 3
3 – 5
More than
Total
1 year
years
years
5 years
(In thousands)
Unfunded portions of outstanding construction loans
$
46,416
$
20,903
$
25,513
$
—
$
—
Unfunded commitments
4,771
4,771
—
—
—
Total contractual obligations
$
51,187
$
25,674
$
25,513
$
—
$
—
Recent Accounting Pronouncements
See “Note 2 — Significant Accounting Policies” to the unaudited condensed consolidated financial statements for explanation of recent accounting pronouncements impacting us.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
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