Sachem Capital Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual 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 results 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. The Company operates its business as one segment. The Company offers 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 the Company’s loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Each loan is typically 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 and investments apart from its lending activities. 41 Table of Contents Items Affecting Comparability of Results Due to a number of factors, our historical financial results may not be comparable from period to period or to future periods. Key factors that may affect comparability include: • Changes in average earning assets and portfolio composition, including periods of lower net loan originations, portfolio runoff, and the resolution of loans through repayment, foreclosure, or sale, which may reduce average loans outstanding and interest-earning assets and, as a result, impact interest income and net interest margin. • Changes in asset yields, including the mix of performing versus nonperforming loans, the timing of loans placed on non-accrual status, the resolution of nonperforming loans, and changes in the composition of loans held for investment versus loans held for sale, all of which may affect the yield on interest-earning assets and the comparability of net interest margin between periods. • Changes in our funding mix, leverage levels, and cost of funds, including repayments, refinancings, and the issuance of new indebtedness (including senior secured notes, revolving credit facilities, and "baby bond" obligations), which may alter average borrowings outstanding and result in material period-to-period changes in interest expense. In certain periods, indebtedness has been replaced at interest rates materially higher than retired obligations, including increases of approximately 200 to 300 basis points, which may negatively impact net interest margin. • Timing differences related to debt deployment and capital availability, including periods where debt capital was outstanding prior to full deployment into interest-earning assets, which may temporarily compress net interest margin and reduce comparability between periods. • Volatility in credit-related expenses and valuation adjustments, including changes in the provision for credit losses, direct allowances, and valuation allowances on loans held for sale, which, while not components of net interest margin, may materially affect net income and period-to-period comparability of overall operating results. • Non-recurring or episodic income and expense items, including income generated from owned real estate, such as rental income from specific projects, and the timing of asset sales or similar transactions, which may not be indicative of ongoing net interest margin or core lending performance. 2025 Year in Review During 2025, the Company focused on stabilizing its credit profile and strengthening its capital structure following the portfolio repositioning actions taken in 2024 and 2025. While average earning assets declined year over year and net interest margin compressed, management prioritized liquidity preservation, resolution of nonperforming assets, and extension of debt maturities over portfolio expansion. Key developments during 2025 included: • A significant reduction in credit-related charges compared to 2024, as provisioning reflected loan-specific adjustments rather than broad-based reserve recalibration. • No comparable large-scale loan sale losses, resulting in improved earnings comparability relative to the prior year. • Issuance of $100.0 million ($90.0 million drawn as of December 31, 2025) of Senior Secured Notes due 2030 bearing interest at 9.875%, which extended the Company’s weighted average debt maturity profile and diversified funding sources. • Reduction of certain short-term borrowings and repayment of maturing unsecured notes, decreasing near-term refinancing concentration. • Successfully completed the sale of its office property located in Westport, Connecticut generating net cash proceeds of approximately $19.9 million and realized a book gain of approximately $4.0 million. The Westport asset was sourced, managed, and executed through Urbane Capital, the Company’s in-house development and asset management platform. 42 Table of Contents • Continued disciplined underwriting in a higher interest rate environment, resulting in moderated net loan originations and a focus on sponsor quality and collateral protection. Although nonaccrual balances remain elevated relative to historical norms, migration trends moderated during the year and reserve coverage reflects updated collateral valuations and expected liquidation timelines. Management continues to evaluate asset resolution strategies with the objective of improving earning asset mix and reducing nonaccrual exposure over time. While funding costs remain elevated relative to pre-2024 levels, the Company believes its current capital structure provides improved duration visibility and liquidity flexibility. Future earnings performance will depend on continued resolution of nonperforming assets, stabilization of net interest margin, disciplined capital allocation, and broader real estate market conditions. The Company intends to address upcoming unsecured note maturities through a combination of operating cash flow, asset resolutions, and capital market activity, subject to prevailing market conditions. Recent Developments Update on Naples, Florida Assets On February 5, 2026, the Company completed a noncash transaction to acquire 100% of the membership interests of the entity holding the condominium assets associated with its legacy Naples, Florida mortgage loan held for investment having a net book value, principal and accrued interest and fees, of approximately $39.9 million. The acquired assets include: • The condominium association, • Three completed condominium units, which are expected to be remarketed for sale immediately under renewed marketing efforts, and • The southern parcel, which is entitled for the development of four additional condominium units. The Company intends to commence construction and marketing activities for these units, with anticipated sales occurring over the next 18 to 24 months, subject to market conditions. At closing, the transaction did not result in a material gain or loss relative to the Company’s net book value of the related assets. Following the transaction, Urbane Capital, a subsidiary of the Company, has assumed responsibility for the active management, development, and monetization of the condominium assets described above, consistent with its role in overseeing the Company’s owned real estate and development initiatives. In addition, the Company has retained and further enhanced its interest in the existing approximate $12.3 million first mortgage secured by a separate and unrelated waterfront development parcel in Naples. The Company does not control or manage development activities related to the waterfront parcel and is not assuming development responsibility for that asset. The Company will continue to monitor this loan held for investment with respect to this parcel in its capacity as a senior secured lender, consistent with its objective of protecting principal and maximizing value. Management believes that consolidating control of the condominium assets while maintaining a secured lender position on the waterfront parcel simplifies the overall capital structure, enhances execution clarity, and positions the Company to actively manage and monetize the assets it directly controls over time. Needham Credit Facility Update On January 21, 2026, the Company entered into Amendment No. 2 to its Credit, Security and Guaranty Agreement with Needham Bank, as administrative agent, and the lenders party thereto, with respect to the Company’s $50.0 million revolving credit facility. The amendment extends the stated maturity of the facility from March 2, 2026 to 43 Table of Contents March 2, 2028, and provides the Company with the ability to request an additional one-year extension to March 2, 2029, subject to lender consent and customary conditions. All other material terms of the credit facility remain unchanged. The extension enhances the Company’s liquidity profile and provides additional balance sheet flexibility as it continues to manage its portfolio and capital allocation strategy. 44 Table of Contents Critical Accounting Policies and Use of Estimates The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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) 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 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. 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 Consolidated Balance Sheets with expanded disclosures in the notes to the consolidated financial statements. The change in the balances during the reporting period are recorded in the Consolidated Statements of Operations under the provision for credit losses. 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. 45 Table of Contents Results of Operations Our results of operations depend primarily on net interest income, the credit performance of our loan portfolio, and the effectiveness of our operating platform. These results are affected by a variety of factors, including demand for commercial real estate loans, competitive conditions in loan origination, the cost, structure, and availability of financing, operating expense levels, and the performance of the collateral securing our loans. Years ended December 31, 2025 and 2024 Year Ended December 31, 2025 2024 $ Change % Change Interest income from loans 32,222 43,154 (10,932) (25.3) % Interest income from limited liability company investments 4,838 5,127 (289) (5.6) % Interest expense and amortization of deferred financing costs (25,390) (27,798) (2,408) (8.7) % Net interest income 11,670 20,483 (8,813) (43.0) % Net interest margin 3.1 % 4.4 % Provision for credit losses related to loans held for investment (3,280) (26,928) (23,648) (87.8) % Gain (loss) on sale of loans 121 (21,973) 22,094 100.5 % Change in valuation allowance related to loans held for sale 1,014 (4,880) 5,894 120.8 % Net interest income (loss) after provision for credit losses related to loans held for investment, gain (loss) on sale of loans, and changes in valuation allowance related to loans held for sale 9,525 (33,298) 42,823 128.6 % Other income Fee income from loans 5,978 8,594 (2,616) (30.4) % Income from limited liability company investments 467 112 355 317.0 % Other investment income 141 391 (250) (64.0) % Gain on investment securities 1,566 178 1,388 779.8 % Other income 1,726 122 1,604 1,314.8 % Total other income 9,878 9,397 481 5.1 % Operating expenses Compensation and employee benefits (7,661) (6,824) 837 12.3 % General and administrative expenses (6,482) (6,841) (359) (5.2) % Impairment loss on real estate owned (1,060) (492) 568 115.4 % Gain on sale of investments in developmental real estate, real estate owned, and property and equipment, net 4,055 439 3,616 823.7 % Other expenses (1,947) (1,952) (5) (0.3) % Total operating expenses (13,095) (15,670) (2,575) (16.4) % Net income (loss) 6,308 (39,571) 45,879 115.9 % Preferred stock dividends (4,472) (4,304) 168 3.9 % Net income (loss) attributable to common shareholders 1,836 (43,875) 45,711 104.2 % Basic and diluted earnings (losses) per Common Share $ 0.04 $ (0.93) Basic and diluted weighted average Common Shares outstanding 46,893,413 47,413,012 Net income (loss) and Net income (loss) attributable to common shareholders are the primary metrics by which we assess our business performance. Accordingly, we closely monitor the primary drivers which consist of the following: 46 Table of Contents Net interest income Net interest income represents the largest component of our net income and is evaluated on both an absolute basis and relative to our provision for credit losses and operating expenses. Net interest income is generated when the yield earned on our loan portfolio exceeds the cost of financing those assets, which we primarily achieve through short- and long-term financing arrangements. Accordingly, we actively monitor financing market conditions and maintain ongoing dialogue with investors and financial institutions as we evaluate funding sources and cost of capital. In evaluating net interest income, management monitors: (1) portfolio loan yields, (2) funding costs, (3) net interest spread, and (4) net interest margin. Net interest spread reflects the difference between the yield earned on our loans and the interest rates paid on our funding sources. Net interest margin represents net interest income, calculated as annualized interest income less annualized interest expense, expressed as a percentage of average loans outstanding for the applicable period. Average loans outstanding are calculated using the arithmetic average of the unpaid principal balance of loans held for investment as of the end of each of the five most recent fiscal quarters. Changes in net interest income are primarily driven by origination activity, changes in average outstanding loan balances (total, performing and nonperforming), and fluctuations in interest rates affecting asset yields and funding costs. Historically, portfolio growth driven by loan originations has been the primary contributor to increases in net interest income. Net interest income is evaluated both before and after interest expense associated with corporate debt and before and after provisions for credit losses. Interest income from loans - decreased year over year, primarily reflecting continuing lower net loan originations over the past eighteen months since our historical peak balance in loans held for in investment of $508.9 million in June 2024, which reduced the average unpaid principal balance of loans held for investment. • Average loans held for investment were $376.4 million and $468.8 million for the years ended December 31, 2025 and 2024, respectively. The effective yield on total loans held for investment was 8.6% and 9.2%. respectively. Results were also impacted by a higher level of nonperforming loans and real estate owned, which do not contribute interest income. • Average total performing loans held for investment were $269.3 million and $366.6 million for the years ended December 31, 2025 and 2024, respectively. The effective yield on performing loans was 12.0% and 11.8%, respectively. The difference between total portfolio yield and performing loan yield reflects the impact of nonaccrual loans, which do not generate current interest income. • Average nonperforming loans held for investment were $107.1 million and $102.2 million for the years ended December 31, 2025 and 2024, respectively. Interest income from limited liability company investments - Interest income generated from the Company’s investments in the Shem Creek funds and direct loan co-investment vehicles decreased year over year. The decrease was primarily attributable to lower average capital deployed within certain direct loan co-investment vehicles during 2025. As underlying mortgage loans repaid, capital was returned to the Company and not redeployed at prior levels within those structures. In certain vehicles, the Company’s ownership percentage also declined during the period, further reducing its effective exposure. The decrease in interest income was driven by lower average invested balances rather than changes in underlying loan yields or credit performance. The Shem Creek portfolios continue to consist primarily of short-duration, first mortgage loans, and there were no material changes in the contractual economics of those investments during the period. The Company evaluates these minority investments as part of its broader capital allocation framework. Given the short-term nature of the underlying assets and the return of capital upon loan repayment, investment balances may fluctuate 47 Table of Contents period to period depending on repayment activity and redeployment decisions. Capital returned from these vehicles may be redeployed into other investment opportunities or retained to support liquidity and balance sheet objectives. See Note 19 — Limited Liability Company ("LLC") Investments — to our consolidated financial statements for the year ended December 31, 2025. Interest expense and amortization of deferred financing costs - decreased year over year, primarily attributable to lower average borrowings, $277.8 million and $301.2 million actual at December 31, 2025 and 2024, respectively, resulting from a decline in average earning assets. The reduction in average earning assets reduced funding requirements and corresponding interest expense. During 2025, the Company, as a result of maturing unsecured notes payable, began repositioning its capital structure through the issuance of $100.0 million ($90.0 million drawn as of December 31, 2025) of Senior Secured Notes due 2030. The secured notes replaced a portion of lower rate unsecured notes and reduced reliance on repurchase agreements and lines of credit. Management continues to evaluate refinancing strategies for upcoming maturities, with a focus on extending duration and optimizing cost of capital. Access to diversified funding sources remains a strategic priority as the Company balances liquidity, leverage, and shareholder returns. While funding costs remained elevated relative to pre-2024 levels, lower average debt outstanding drove the overall reduction in interest expense year over year. Net Interest Margin Net interest margin in 2025 was 3.1% compared to 4.4% in 2024. The 130 basis point decline in net interest margin reflects both structural and cyclical factors. Structurally, refinancing activity during the year increased the weighted average cost of capital. Cyclically, lower average earning assets and a higher concentration of nonaccrual loans reduced interest-earning balances. While asset yields remained strong on performing loans, 12.0% in 2025 as compared to 11.8% in 2024, overall margin compression occurred due to balance sheet contraction and capital structure repositioning. Management expects margin stabilization to depend on continued resolution of nonperforming loans, normalization of earning asset levels, and disciplined origination activity at spreads consistent with current funding costs. Net interest income (loss) after provision for credit losses, loss on sale of loans, and changes in valuation allowance Credit risk management is central to our operating model. We seek to minimize credit losses through disciplined underwriting, active life-of-loan portfolio management, and targeted special servicing. We closely monitor portfolio credit performance, including delinquency trends and expected and realized credit losses, as a key indicator of overall operating results. Provision for credit losses related to loans held for investment - declined year over year primarily due to (i) charge-offs and resolution of certain non-performing exposures, (ii) stabilization in collateral valuations for loans previously reserved, and (iii) changes in portfolio composition, including reductions in higher-risk exposures through loan restructurings. The Company continues to apply a conservative collateral-dependent methodology for loans in foreclosure and pending foreclosure status. Management evaluates the allowance quarterly based on updated appraisals, liquidation cost assumptions and macroeconomic forecasts under the CECL framework. While provision levels were significantly elevated in 2024, the lower provision in 2025 reflects resolution activity rather than a change in underwriting standards or risk tolerance. Gain (Loss) on sale of loans - The current year reflects only nominal loan sale activity of $5.1 million , while the prior year included the strategic disposition of $55.8 million of a concentrated group of nonperforming loans. That prior- 48 Table of Contents year transaction was executed to (i) reduce exposure to certain collateral types and borrower profiles, (ii) redeploy capital into performing assets, and (iii) improve forward credit metrics. Change in valuation allowance related to loans held for sale - The valuation allowance adjustment reflects updated fair value estimates on loans classified as held for sale. The prior year included mark-to-market adjustments associated with loans moved to nonaccrual and pending foreclosure status. In 2025, collateral values stabilized and certain assets were resolved or reclassified, resulting in a net improvement in the valuation allowance position relative to the prior year. Total other income Total other income remained relatively consistent year over year, with underlying components shifting in composition rather than magnitude. Fee income on loans - declined year over year primarily due to lower new loan origination volume. Origination and modification fees are recognized over the contractual life of the loan, and the decrease reflects the smaller average portfolio growth and reduced refinancing activity relative to the prior year. Income from limited liability company investments - increased year over year due to reflecting a full year of earnings from the Shem Creek manager investment compared to a partial year in 2024. See Note 19 to the consolidated financial statements. Other investment income - Other investment income varies based on the timing of realizations and performance of non-core investment holdings. The year-over-year change reflects reduced activity relative to the prior period. Gain on equity securities - The current year includes both realized gains on disposition and net mark-to-market gains on equity securities held within the investment portfolio. These gains reflect changes in fair value and are inherently subject to market volatility. The prior year included smaller net gains due to less favorable equity market conditions during the period. Other income - Other income consists primarily of ancillary revenue streams, including property-related income and miscellaneous recoveries. The increase year over year reflects rents recognized on certain investments in developmental real estate and real estate owned and certain non-recurring recoveries. Total operating expenses Our operating expenses primarily include compensation and benefits for our employees, general and administrative expense including occupancy costs, professional fees for legal, consulting, and advisory services, costs related to investments in developmental real estate, foreclosure pursuits and the resolution and disposition of real estate owned. Management monitors operating expenses in relation to profitability and the scale of our loan portfolio. Because origination volume and portfolio size influence the level and impact of operating expenses, we also closely monitor loan origination activity and key loan characteristics, including interest rates, loan-to-value ratios, estimated credit losses, and expected loan duration. Management continues to align operating expense levels with portfolio scale while preserving asset management intensity. As origination activity and earning asset levels increase, the Company expects to benefit from operating leverage as fixed overhead costs are absorbed over a larger asset base. Total operating expenses declined year over year due to lower credit-related charges and improved expense discipline relative to portfolio size. Compensation and employee benefits - increased modestly year over year, reflecting strategic additions to personnel and performance-based compensation adjustments. Management continues to align staffing levels with portfolio scale and operational complexity. General and administrative expenses - decreased year over year due to reduced professional fees and cost management focus during the prior year’s market slowdown. 49 Table of Contents Impairment loss on real estate owned - increased year over year and relates to specific property-level valuation adjustments following updated market data and liquidation timelines. Gain on sale of investments in developmental real estate, real estate owned and property and equipment, net - The current year reflects gains realized on the disposition of select real estate assets and developmental projects. These gains were driven by improved execution relative to carrying value and successful asset repositioning.The prior year included more limited disposition activity. See Note 5 to the consolidated financial statements. Other expenses - were consistent year over year and primarily reflect operating costs associated with real estate owned, legal matters, and portfolio servicing. Net income (loss) and net income (loss) attributable to common shareholders Net income (loss) - The return to profitability in 2025 was driven by: • Lower credit provisioning • Absence of large realized loan sale losses • Stabilization of valuation allowances • Improved capital structure positioning In contrast, 2024 results were significantly impacted by elevated credit costs, loan sale losses, and valuation adjustments. While current results reflect a stabilized operating environment, earnings remain influenced by portfolio seasoning, asset resolution timing, and funding costs. Net income (loss) attributable to common shareholders - After preferred dividends, income attributable to common shareholders reflects the combined impact of improved operating performance and reduced extraordinary credit-related charges relative to the prior year. 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): December 31, 2025 2024 Total shareholders’ equity 174,937 $ 181,651 Series A Preferred Stock ($25 liquidation preference per share) (57,819) (57,669) Total shareholders’ equity, net of preferred stock $ 117,118 $ 123,982 Number of common shares outstanding at period end 47,684,955 46,965,306 Book value per common share $ 2.46 $ 2.64 Book value per common share decreased $0.18 year over year. The decrease is primarily due to aggregate cash dividends declared and paid for the year ended December 31, 2025 on issued and outstanding common shares and shares of Series A Preferred Stock totaling $14.0 million, partially offset by net income for the year ended December 31, 2025 of $6.3 million. The calculation is also impacted by an increase in the liquidation preference for the Series A Preferred stock as we issued 6,010 shares during the year ended December 31, 2025 as well as an increase in common shares outstanding of approximately 720,000 shares. 50 Table of Contents Liquidity and Capital Resources Total assets at December 31, 2025 were $460.0 million compared to $492.0 million at December 31, 2024, a decrease of $(32.0) million, or (6.5)%. The decrease was due primarily to utilizing cash generated from investing activities to reduce long term debt by $23.4 million. Total liabilities at December 31, 2025 were $285.1 million compared to $310.3 million at December 31, 2024, a decrease of $25.2 million, or 8.1%. This decrease was principally due to repaying in full our unsecured unsubordinated five-year notes that matured in September 2025 of $56.3 million, terminating the Churchill Credit Facility of $33.7 million, and reducing the balance on the Needham Credit Facility by $21.0 million. These decreases were partially offset by the five-year senior secured notes payable issued in June 2025 which totaled $86.6 million at year end. As of December 31, 2025, the Company’s capital structure consisted of a mix of unsecured listed notes, senior secured notes, and revolving credit facilities. The increase in secured financing during 2025 reflects management’s strategy to diversify funding sources. While secured borrowings increased asset encumbrance, they also provide longer-term capital stability and improved liquidity flexibility. Management actively monitors asset coverage ratios, covenant compliance and refinancing risk associated with upcoming maturities. Total shareholders’ equity at December 31, 2025 was $174.9 million compared to $181.7 million at December 31, 2024, a decrease of $6.8 million, or (3.7)%. This decrease was attributable to common stock dividends of $9.5 million and Series A Preferred stock dividends of $4.5 million partially offset by net income of $6.3 million and stock compensation expense of $0.8 million. Historically, the Company has distributed a substantial portion of its earnings in order to maintain its REIT qualification. Dividend levels are determined by the Board of Directors based on taxable income, capital needs, liquidity, market conditions and regulatory requirements. Accordingly, dividend levels may fluctuate from period to period depending on operating performance, credit trends, asset repositioning activity and capital market access. 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. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below: Year Ended December 31, One Year Change Amount 2025 2024 Amount Percentage (in thousands) Cash and cash equivalents, January 1 $ 18,066 $ 12,598 $ 5,468 30.3 % Net cash provided by operating activities 2,662 12,890 (10,228) (384.2) % Net cash provided by investing activities 29,350 79,910 (50,560) (172.3) % Net cash used in financing activities (39,154) (87,332) 48,178 (123.0) % Cash and cash equivalents, December 31 $ 10,924 $ 18,066 $ (7,142) (65.4) % For a detailed breakdown of our cash flows during the years ended December 31, 2025 and 2024, see the statement of cash flows included in our audited 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 December 2026, and payments for usual and customary operating and administrative 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. 51 Table of Contents Our long-term cash needs will include principal and interest payments on outstanding indebtedness including notes payable in the principal amount of $173.2 million maturing late in 2026 and in 2027, preferred stock dividends and funding of new mortgage loans. Specific to the maturing notes payable, management believes the Company will address these maturities through a combination of operating cash flow, credit facility capacity, secured financing alternatives and potential capital markets transactions, subject to market conditions. There can be no assurance that refinancing will occur on terms similar to existing obligations. The Company continues to proactively evaluate capital market access and balance sheet positioning in advance of these maturities. In general, 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 investment in developmental real estate and real estate owned. Subsequent Events In addition to the items noted above in Recent Developments, see Note 21 - Subsequent Events. 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. Contractual Obligations As of December 31, 2025, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans and limited liability company investments. (in thousands) Total Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Unfunded portions of outstanding construction loans $ 37,156 $ 24,718 $ 12,438 $ — $ — Unfunded commitments - investments in limited liability companies 1,371 1,371 — — — Total contractual obligations $ 38,527 $ 26,089 $ 12,438 $ — $ — Recent Accounting Pronouncements See ‘‘Note 2 — Significant Accounting Policies’’ to the financial statements for explanation of recent accounting pronouncements impacting us.