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Sachem Capital(SACH) - 2024 Q2 - Quarterly Report

Filing Information This section details the Form 10-Q filing for Sachem Capital Corp., including its classification and registered securities Form 10-Q Details The report is a Form 10-Q for Q2 2024, filed by Sachem Capital Corp. as a non-accelerated, smaller reporting company - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 20242 - Sachem Capital Corp. is classified as a non-accelerated filer and a smaller reporting company3 Registered Securities | Title of each class | Ticker symbol(s) | Name of each exchange on which registered | | :---------------------------------------------------------------------------- | :--------------- | :---------------------------------------- | | Common shares, par value $.001 per share | SACH | NYSE American LLC | | 6.875% Notes due 2024 | SACC | NYSE American LLC | | 7.75% Notes due 2025 | SCCC | NYSE American LLC | | 6.00% Notes due 2026 | SCCD | NYSE American LLC | | 6.00% Notes due 2027 | SCCE | NYSE American LLC | | 7.125% Notes due 2027 | SCCF | NYSE American LLC | | 8.00% Notes due 2027 | SCCG | NYSE American LLC | | 7.75% Series A Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share | SACHPRA | NYSE American LLC | Part I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis Item 1. FINANCIAL STATEMENTS This section provides unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets Total assets decreased by 6.3% to $586.3 million, driven by reduced investment securities and mortgages receivable Consolidated Balance Sheet Highlights | Metric | June 30, 2024 (thousands) | December 31, 2023 (thousands) | Change (%) | | :--------------------------------------- | :------------------------ | :-------------------------- | :--------- | | Total Assets | $586,321 | $625,539 | -6.3% | | Total Liabilities | $356,153 | $395,463 | -9.9% | | Total Shareholders' Equity | $230,168 | $230,076 | +0.04% | | Mortgages receivable, net | $485,728 | $491,712 | -1.2% | | Investment securities (at fair value) | $1,798 | $37,776 | -95.2% | | Notes payable (net) | $259,913 | $282,353 | -7.9% | Consolidated Statements of Operations Net loss of ($4.1) million for Q2 2024, driven by an $8.4 million increase in credit loss provisions Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) | | :------------------------------------------ | :--------------- | :--------------- | :----------- | | Total Revenues | $15,146 | $16,273 | -6.9% | | Total Operating Expenses | $18,461 | $10,325 | +78.8% | | Provision for credit losses related to loans | $8,503 | $94 | +8945.7% | | Net income (loss) attributable to common shareholders | $(4,124) | $4,773 | -186.4% | | Basic earnings (loss) per common share | $(0.09) | $0.11 | -181.8% | Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) | | :------------------------------------------ | :--------------- | :--------------- | :----------- | | Total Revenues | $31,950 | $30,590 | +4.4% | | Total Operating Expenses | $30,980 | $20,063 | +54.4% | | Provision for credit losses related to loans | $9,868 | $197 | +4909.6% | | Net income (loss) attributable to common shareholders | $(476) | $8,968 | -105.3% | | Basic earnings (loss) per common share | $(0.01) | $0.21 | -104.8% | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive loss was ($4.3) million for Q2 2024, due to net loss and unrealized debt security losses Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | | :-------------------------------------------------- | :--------------- | :--------------- | | Net income (loss) | $(3,056) | $5,698 | | Unrealized gain (loss) on debt securities | $(126) | $94 | | Reversal of losses on debt securities from unrealized to realized | $(65) | $0 | | Total comprehensive income (loss) attributable to common shareholders | $(4,315) | $4,867 | Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | | :-------------------------------------------------- | :--------------- | :--------------- | | Net income (loss) | $1,615 | $10,818 | | Unrealized gain (loss) on debt securities | $(251) | $185 | | Reversal of losses on debt securities from unrealized to realized | $(65) | $0 | | Total comprehensive income (loss) attributable to common shareholders | $(792) | $9,153 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity slightly increased to $230.2 million, influenced by stock issuance, compensation, and dividends Key Changes in Shareholders' Equity (Six Months Ended June 30, 2024) | Item | Amount (thousands) | | :------------------------------------------ | :--------------- | | Balance, January 1, 2024 | $230,076 | | Issuance of Series A Preferred Stock, net of expenses | $3,616 | | Issuance of Common Shares, net of expenses | $2,050 | | Stock-based compensation | $437 | | Unrealized loss on debt securities | $(251) | | Reversal of losses from unrealized to realized | $(65) | | Dividends paid on Series A Preferred Stock | $(2,091) | | Dividends Paid on Common Shares | $(5,219) | | Net income | $1,615 | | Balance, June 30, 2024 | $230,168 | Consolidated Statements of Cash Flows Operating cash flow slightly decreased, investing activities provided cash, and financing activities used cash due to debt repayments Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2024 (thousands) | 2023 (thousands) | | :---------------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $11,179 | $12,079 | | Net Cash Provided by (Used in) Investing Activities | $27,534 | $(65,159) | | Net Cash (Used in) Provided by Financing Activities | $(40,734) | $44,496 | | Net Decrease in Cash and Cash Equivalents | $(2,021) | $(8,584) | | Cash and Cash Equivalents – End of Period | $10,577 | $15,129 | - Proceeds from the sale of investment securities significantly contributed to investing activities, totaling $43,964 thousand in 202426 - Financing activities in 2024 were primarily impacted by repayments of lines of credit ($6,792 thousand), repurchase facility ($3,468 thousand), and notes payable ($23,647 thousand), along with dividends paid26 Notes to Unaudited Consolidated Financial Statements Detailed notes cover business, accounting policies, fair value, mortgages, real estate, debt, equity, and other financial disclosures 1. The Company Sachem Capital Corp. provides short-term, secured first mortgage loans to real estate investors, primarily in the Northeast and Southeast U.S - Sachem Capital Corp. specializes in short-term (1-3 years), secured, non-bank first mortgage loans28 - Loans are provided to real estate owners and investors for property acquisition, renovation, development, rehabilitation, or improvement, primarily in the northeastern and southeastern U.S28 - The primary underwriting criterion is a conservative loan-to-value (LTV) ratio, and the company does not lend to owner-occupants of residential real estate28 2. Summary of Significant Accounting Policies Financial statements follow GAAP, with key policies on debt classification, CECL adoption, and REIT tax status - Unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management estimates and assumptions2930 - The company adopted the CECL standard effective January 1, 2023, for credit losses on its loan portfolio and unfunded commitments, using a static pool methodology3334 - Sachem Capital Corp. elected to be taxed as a REIT on its 2017 federal income tax return, generally exempting it from U.S. federal income tax on taxable income distributed to shareholders52 3. Fair Value Measurement Total investment securities at fair value decreased to $1.8 million, primarily Level 2 stocks, after selling all debt securities - The fair value hierarchy prioritizes inputs to valuation techniques, with Level 1 for unadjusted quoted prices in active markets and Level 3 for unobservable inputs39 Investment Securities at Fair Value (June 30, 2024) | Category | Level 1 (thousands) | Level 2 (thousands) | Total (thousands) | | :--------------- | :------------------ | :------------------ | :---------------- | | Stocks and ETFs | $0 | $1,798 | $1,798 | | Mutual funds | $0 | $0 | $0 | | Debt securities | $0 | $0 | $0 | | Total | $0 | $1,798 | $1,798 | Investment Securities at Fair Value (December 31, 2023) | Category | Level 1 (thousands) | Level 2 (thousands) | Total (thousands) | | :--------------- | :------------------ | :------------------ | :---------------- | | Stocks and ETFs | $0 | $1,755 | $1,755 | | Mutual funds | $16,237 | $0 | $16,237 | | Debt securities | $18,945 | $839 | $19,784 | | Total | $35,182 | $2,594 | $37,776 | - The company sold all of its remaining available-for-sale debt securities during the three months ended June 30, 20243865 4. Mortgages Receivable, net Gross mortgage portfolio at $500.1 million, with increased credit loss allowance and nonaccrual loans Mortgages Receivable and Allowance for Credit Losses | Metric | June 30, 2024 (thousands) | December 31, 2023 (thousands) | | :-------------------------------- | :------------------------ | :-------------------------- | | Mortgages receivable (gross) | $500,133 | $499,235 | | Less: Allowance for credit losses | $(14,405) | $(7,523) | | Mortgages receivable, net | $485,728 | $491,712 | - Loans on nonaccrual status increased to $106.9 million as of June 30, 2024, from $84.6 million at December 31, 202369 - As of June 30, 2024, 79 mortgage loans, representing $132.0 million (30.2% of the portfolio), have matured but have not been repaid in full or extended81 Loan Modifications for Borrowers Experiencing Financial Difficulty (Six Months Ended June 30) | Year | Amount (millions) | % of Total Mortgage Receivable | | :--- | :---------------- | :----------------------------- | | 2024 | $104.5 | 20.9% | | 2023 | $27.6 | 5.4% | 5. Investment in Rental Real Estate, net Net rental real estate investment increased to $11.9 million, driven by construction in progress and a Westport acquisition Investment in Rental Real Estate, Net | Metric | June 30, 2024 (thousands) | December 31, 2023 (thousands) | | :------------------------- | :------------------------ | :-------------------------- | | Total Investment in Rental Real Estate, Net | $11,904 | $10,554 | | Construction in progress | $939 | $157 | - The company acquired a commercial office building in Westport, CT, for $10.6 million in August 202346 - An expected payment of $0.6 million for additional purchase price, related to approved residential units for the Westport Asset, has been accrued as of June 30, 202490 6. Real Estate Owned (REO) REO increased to $3.9 million, with $0.1 million impairment loss and $0.3 million net gain from property sales Real Estate Owned (REO) Summary | Metric | June 30, 2024 (thousands) | December 31, 2023 (thousands) | | :--------------------------------------- | :------------------------ | :-------------------------- | | Real estate owned at the beginning of period | $3,462 | $5,216 | | Principal basis transferred to real estate owned | $1,626 | $1,756 | | Proceeds from sale of real estate owned | $(1,403) | $(3,040) | | Impairment loss | $(77) | $(794) | | Gain on sale of real estate owned | $264 | $94 | | Balance at end of period | $3,872 | $3,462 | - As of June 30, 2024, REO included $0.8 million of real estate held for rental and $3.1 million of real estate held for sale91 - During the six months ended June 30, 2024, the company sold eleven properties held for sale and recognized a net gain of $0.3 million92 7. Other Assets Total other assets slightly decreased to $8.8 million, comprising notes receivable, deferred costs, and goodwill Other Assets Summary | Item | June 30, 2024 (thousands) | December 31, 2023 (thousands) | | :---------------------------- | :------------------------ | :-------------------------- | | Prepaid expenses | $310 | $511 | | Other receivables | $1,217 | $1,923 | | Notes receivable | $5,499 | $4,508 | | Deferred financing costs, net | $240 | $308 | | Deferred leasing cost | $387 | $387 | | Leases in place intangible | $568 | $568 | | Goodwill | $391 | $391 | | Total | $8,808 | $8,956 | - Goodwill remained at $0.4 million as of June 30, 2024, with no impairment recorded during the three and six months ended June 30, 2024 and 20235094 8. Lines of Credit, Mortgage Payable and Churchill Facility Debt facilities include Needham, NHB, and Churchill, with the Wells Fargo loan repaid and all subject to a 150% asset coverage ratio - The Wells Fargo margin loan, with an outstanding balance of $26.8 million at December 31, 2023, was fully repaid during the second quarter of 202495 Key Debt Facilities (June 30, 2024) | Facility | Total Capacity (millions) | Outstanding Balance (millions) | Interest Rate | | :-------------------------- | :------------------------ | :----------------------------- | :------------ | | Needham Credit Facility | $65.0 | $55.0 | 8.25% | | New NHB Mortgage | $1.66 | $1.0 | 5.75% (initial) | | Churchill Repurchase Facility | $200.0 | $23.0 | 9.60% (effective) | - All debt facilities are subject to various covenants, including a requirement to maintain an asset coverage ratio of at least 150%97101 9. Unsecured Notes Payable Total unsecured notes payable were $259.9 million, with $23.7 million redeemed and six series outstanding - Total unsecured, unsubordinated notes payable (net of deferred financing costs) amounted to $259.9 million as of June 30, 2024103 - The company redeemed $23.7 million of 7.125% unsecured notes due June 30, 2024103 Outstanding Unsecured Notes Payable (June 30, 2024) | Series | Principal Amount (thousands) | Interest Rate | Maturity Date | Callable Status | | :---------------- | :--------------------------- | :------------ | :------------ | :-------------- | | December 2024 Notes | $34,500 | 6.875% | Dec 30, 2024 | Callable | | September 2025 Notes | $56,400 | 7.75% | Sep 30, 2025 | Callable | | December 2026 Notes | $51,800 | 6.00% | Dec 30, 2026 | Callable | | March 2027 Notes | $51,900 | 6.00% | Mar 30, 2027 | Callable | | June 2027 Notes | $30,000 | 7.125% | Jun 30, 2027 | Callable | | September 2027 Notes | $40,300 | 8.00% | Sep 30, 2027 | Callable after Aug 23, 2024 | 10. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities increased to $2.8 million, mainly due to higher credit loss allowance Accounts Payable and Accrued Liabilities | Item | June 30, 2024 (thousands) | December 31, 2023 (thousands) | | :------------------------------------------ | :------------------------ | :-------------------------- | | Accounts payable and accrued expenses | $1,253 | $1,331 | | Allowance for credit losses on unfunded commitments | $1,105 | $509 | | Accrued interest | $442 | $482 | | Total | $2,800 | $2,322 | 11. Fee income from loans Fee income from loans decreased for both three and six-month periods, with origination and modification fees declining Fee Income from Loans (Three Months Ended June 30) | Fee Type | 2024 (thousands) | 2023 (thousands) | | :-------------------------- | :--------------- | :--------------- | | Origination and Modification fees | $1,194 | $1,764 | | Extension fees | $271 | $233 | | Late and other fees | $226 | $37 | | Construction servicing fees | $70 | $501 | | Other fees | $211 | $634 | | Total | $2,083 | $3,319 | Fee Income from Loans (Six Months Ended June 30) | Fee Type | 2024 (thousands) | 2023 (thousands) | | :-------------------------- | :--------------- | :--------------- | | Origination and Modification fees | $2,656 | $3,240 | | Extension fees | $385 | $414 | | Late and other fees | $509 | $150 | | Construction servicing fees | $249 | $668 | | Other fees | $672 | $739 | | Total | $4,699 | $5,489 | 12. Commitments and Contingencies Future funding obligations total $89.0 million, with deferred revenue, unvested stock, and contingent payments - As of June 30, 2024, the company had future funding obligations totaling $89.0 million for 93 loans111 - Deferred revenue from loan origination and modification fees was $4.8 million at June 30, 2024, to be recognized as income over the contractual life of the underlying mortgage notes109 - As of June 30, 2024, 231,926 restricted common shares granted under the CEO's employment contract remain unvested110 - The company has a contingent payment obligation to Urbane New Haven, LLC, representing 20% of net proceeds from certain real estate development projects under specific circumstances113 13. Related Party Transactions Loans to shareholders totaled $23.9 million, with consistent interest income and CEO's daughter compensation Loans to Known Shareholders | Metric | June 30, 2024 (millions) | December 31, 2023 (millions) | | :----------------------- | :----------------------- | :--------------------------- | | Total loans to shareholders | $23.9 | $25.6 | - Interest income earned on related party loans was $0.5 million for the three months and $1.1 million for the six months ended June 30, 2024 and 2023, respectively114 - Compensation to the CEO's daughter was $0.04 million for the three months and $0.08 million for the six months ended June 30, 2024 and 2023, respectively115 14. Concentration of Credit Risk Credit risk is concentrated geographically in CT, FL, NY, and by property type in residential and commercial Geographical Concentration of Mortgage Loans (June 30, 2024) | State | % of Mortgage Loans | | :------------ | :------------------ | | Connecticut | 36.3% | | Florida | 28.4% | | New York | 12.8% | Property Type Concentration of Mortgage Loans (June 30, 2024) | Property Type | % of Mortgage Loans | | :-------------- | :------------------ | | Residential | 58.0% | | Commercial | 29.3% | | Pre-Development Land | 6.8% | | Mixed Use | 5.9% | 15. Stock-Based Compensation and Employee Benefits Granted 212,857 restricted common shares ($0.8 million fair value), with $0.4 million stock-based compensation expense - The company granted 212,857 restricted common shares with a fair value of approximately $0.8 million during the six months ended June 30, 2024119 - Stock-based compensation expense was $0.2 million for the three months and $0.4 million for the six months ended June 30, 2024 and 2023, respectively120 - The 401(k) Plan expense was $0.03 million for the three months and $0.08 million for the six months ended June 30, 2024 and 2023, respectively121 16. Equity Offerings ATM offerings generated $2.1 million from common shares and $3.7 million from Series A Preferred Stock sales - During the six months ended June 30, 2024, the company sold 568,711 common shares, realizing gross proceeds of $2.1 million, through its ATM offering123 - The company also sold 176,205 shares of Series A Preferred Stock, realizing gross proceeds of $3.7 million, through its ATM offering during the same period123 17. Partnership Investments Partnership investments totaled $47.0 million, generating $2.4 million income, with $2.7 million unfunded commitments - Total partnership investments amounted to $47.0 million in five limited liability companies as of June 30, 2024124 Income from Partnership Investments (Six Months Ended June 30) | Year | Income (millions) | | :--- | :---------------- | | 2024 | $2.4 | | 2023 | $1.6 | - Unfunded partnership commitments totaled $2.7 million as of June 30, 2024126 18. Series A Preferred Stock Series A Preferred Stock pays 7.75% cumulative dividends, not redeemable before June 2026, and has limited voting rights - Series A Preferred Stock pays quarterly cumulative dividends at 7.75% per annum, equivalent to $1.9375 per share on a $25.00 liquidation preference127 - The Series A Preferred Stock is not redeemable before June 29, 2026, except upon a Change of Control, and is callable at the company's option thereafter127 - Holders of Series A Preferred Stock generally do not have voting rights, except under limited circumstances127 19. Subsequent Events Declared $0.08 common share dividend, sold Series A Preferred Stock, and repurchased common shares post-Q2 - On July 19, 2024, the company declared a dividend of $0.08 per common share, totaling $3.8 million, which was paid on August 6, 2024128 - Between July 1, 2024, and August 14, 2024, the company sold 7,622 shares of Series A Preferred Stock for $0.2 million gross proceeds128 - During the same period, the company repurchased 114,796 common shares through its existing stock repurchase plan128 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, condition, business strategies, and outlook for H1 2024 and the remainder of the year Company Overview Sachem Capital Corp. is a Connecticut-based REIT specializing in short-term, first mortgage real estate loans - Sachem Capital Corp. is a Connecticut-based real estate finance company specializing in originating, underwriting, funding, servicing, and managing a portfolio of short-term (three years or less) loans secured by first mortgage liens on real property130 - The company has qualified as a REIT for federal income tax purposes since its IPO in February 2017, requiring it to distribute at least 90% of its taxable income to shareholders annually130 Review of the First Half of 2024 and Outlook for Balance of Year H1 2024 saw revenue growth but a net loss due to credit provisions, with challenges including high interest rates and property value declines H1 2024 Financial Performance (YoY) | Metric | Change (%) | | :------------------------------------------ | :--------- | | Revenue | +4.4% | | Net income attributable to common shareholders | -105.3% | | Earnings per share | -$0.22 | | Interest income | +6.6% | | Income from partnership investments | +55.1% | | Provision for credit losses related to loans | +$9.7 million | | Interest expense and amortization of deferred financing costs | +3.1% | | General and administrative expenses | +12.7% | | Other expenses | +191.6% | - The primary business objective for 2024 is to protect book value for shareholders by allocating capital for attractive risk-adjusted returns, principally through dividends132 - Major challenges include a high interest rate environment (Needham Credit Facility at 8.25%, Churchill Facility at 9.60%), capital markets illiquidity, global and domestic political concerns, increased competition from private lenders, property value fluctuations and declines (especially commercial real estate), and unfunded commitments ($89.0 million at June 30, 2024)134135136137140141 - Key strengths include a strong balance sheet (58.6% debt, 41.4% equity at June 30, 2024), pricing power (12.81% yield on mortgage loan portfolio in H1 2024), access to capital markets, liquidity ($10.6 million cash at June 30, 2024), and experienced management143144145146 Financing Strategy Overview Financing strategy focuses on loan portfolio growth, capital raising, maintaining modest leverage, and REIT compliance - The company's financing strategy involves increasing its loan portfolio size by using existing working capital and raising additional capital through equity sales or incurring additional indebtedness147 - The company aims to maintain a modest leverage ratio (58.6% debt to total capital at June 30, 2024) and reduce its cost of capital148 - Total outstanding indebtedness at June 30, 2024, was $343.8 million, including $23.0 million under the Churchill Facility, $1.0 million under the New NHB Mortgage, $55.0 million under the Needham Credit Facility, and $264.7 million in unsecured notes149 - During the six months ended June 30, 2024, the company sold 568,711 common shares ($2.1 million gross proceeds) and 176,205 Series A Preferred Stock shares ($3.7 million gross proceeds) through its at-the-market offering facility158 - Maintaining REIT qualification requires distributing at least 90% of taxable income to shareholders annually159 Critical Accounting Policies and Use of Estimates Financial statements adhere to GAAP, relying on management estimates for interest income, fee amortization, and CECL-based credit loss allowances - The consolidated financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts161 - Interest income from commercial loans is recognized as earned, while origination and modification fee revenue are amortized over the term of the respective notes162 - Allowances for credit losses are recorded in accordance with the CECL standard, using a loss-rate method that considers historical loss experience, current conditions, and reasonable economic forecasts for the loan portfolio and unfunded commitments163 Results of Operations Q2 2024 saw revenue decrease and a net loss due to surging operating expenses and credit loss provisions Results of Operations (Three Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :--------- | | Total Revenue | $15,146 | $16,273 | -6.9% | | Fee income from loans | $2,083 | $3,319 | -37.2% | | Total Operating Expenses | $18,461 | $10,325 | +78.8% | | Provision for credit losses related to loans | $8,503 | $94 | +8945.7% | | Net income (loss) attributable to common shareholders | $(4,124) | $4,773 | -186.4% | Results of Operations (Six Months Ended June 30) | Metric | 2024 (thousands) | 2023 (thousands) | Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :--------- | | Total Revenue | $31,950 | $30,590 | +4.4% | | Interest income | $24,395 | $22,882 | +6.6% | | Fee income from loans | $4,699 | $5,489 | -14.4% | | Total Operating Expenses | $30,980 | $20,063 | +54.4% | | Provision for credit losses related to loans | $9,868 | $197 | +4909.6% | | Net income (loss) attributable to common shareholders | $(476) | $8,968 | -105.3% | Liquidity and Capital Resources Assets and liabilities decreased, equity stable, with investing activities providing cash and financing using cash Liquidity and Capital Resources Summary | Metric | June 30, 2024 (thousands) | December 31, 2023 (thousands) | Change (%) | | :-------------------------------- | :------------------------ | :-------------------------- | :--------- | | Total Assets | $586,321 | $625,539 | -6.3% | | Total Liabilities | $356,153 | $395,463 | -9.9% | | Total Shareholders' Equity | $230,168 | $230,076 | +0.04% | Cash Flow Activities (Six Months Ended June 30) | Cash Flow Activity | 2024 (thousands) | 2023 (thousands) | | :---------------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $11,179 | $12,079 | | Net Cash Provided by (Used in) Investing Activities | $27,534 | $(65,159) | | Net Cash (Used in) Provided by Financing Activities | $(40,734) | $44,496 | - The company projects its current cash balances and anticipated cash flows from operations will be sufficient to fund operations for the next 12 months176 Off-Balance Sheet Arrangements The company has no off-balance sheet arrangements impacting its liquidity or capital resources - The company is not a party to any off-balance sheet transactions, arrangements, or other relationships that are likely to affect liquidity or capital resources179 Contractual Obligations Total contractual obligations reached $91.7 million, with $62.5 million due within one year Total Contractual Obligations (June 30, 2024) | Category | Total (thousands) | Less than 1 year (thousands) | 1 – 3 years (thousands) | | :------------------------------------ | :---------------- | :--------------------------- | :---------------------- | | Unfunded portions of outstanding construction loans | $88,965 | $59,735 | $29,230 | | Unfunded partnership commitments | $2,734 | $2,734 | $0 | | Total contractual obligations | $91,699 | $62,469 | $29,230 | Critical Accounting Policies and Recent Accounting Pronouncements Refers to Note 2 for detailed explanations of critical accounting policies and recent pronouncements - Refers to Note 2 of the financial statements for explanations of critical accounting policies and recent accounting pronouncements182 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Sachem Capital Corp. is exempt from market risk disclosures - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company183 Item 4. Controls and Procedures Management affirmed effective disclosure controls and procedures, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024184 - There were no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2024185 Part II. OTHER INFORMATION This section outlines key risk factors and other supplementary information for the company Item 1A. Risk Factors Key risks include leverage, restrictive covenants, credit loss provisions, and increasing mortgage loan defaults - The use of leverage magnifies the potential for gain or loss and increases the risks associated with investing in the company187 - Outstanding indebtedness imposes financial and operating covenants, such as maintaining a 150% asset coverage ratio, which could restrict business activities and distributions188190 - Provisions for credit losses and impairments remain a significant risk, driven by a substantial decline in commercial real estate values, leading to increased allowances for credit losses ($19.1 million as of June 30, 2024)191 - A high level of defaults, particularly among larger mortgage loans, is increasing; as of June 30, 2024, 19.1% of the loan portfolio (50 loans, $72.9 million outstanding balance) was in foreclosure proceedings193 Item 6. Exhibits This section lists various exhibits, including organizational documents, debt agreements, and certifications - The exhibits include organizational documents (Certificate of Incorporation, Bylaws), indentures for various series of notes, and preferred stock certificates195 - Key agreements such as the Master Repurchase Agreement with Churchill MRA Funding I LLC and the Credit and Security Agreement with Needham Bank are listed195 - Certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) are included197 SIGNATURES This section contains the official signatures certifying the accuracy and submission of the report Report Signatures The report was signed on August 14, 2024, by the President/CEO and CFO, certifying its submission - The report was signed on August 14, 2024199 - Signatories include John L. Villano, CPA, President and Chief Executive Officer (Principal Executive Officer)199 - Signatories include Nicholas M. Marcello, Chief Financial Officer (Principal Accounting and Financial Officer)199