Sachem Capital(SACH) - 2025 Q2 - Quarterly Report

Part I Financial Statements Sachem Capital Corp.'s Q2 2025 financials reflect increased assets and liabilities, improved net income from reduced credit losses, and decreased operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $501.8 million, driven by cash and loans, while liabilities rose to $323.9 million due to new senior secured notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (unaudited) | December 31, 2024 (audited) | | :--- | :--- | :--- | | Cash and cash equivalents | $22,474 | $18,066 | | Loans held for investment, net | $364,463 | $356,571 | | Total assets | $501,763 | $491,976 | | Notes payable, net | $227,498 | $226,526 | | Senior secured notes payable, net | $46,444 | $0 | | Total liabilities | $323,856 | $310,325 | | Total shareholders' equity | $177,907 | $181,651 | | Total liabilities and shareholders' equity | $501,763 | $491,976 | Condensed Consolidated Statements of Operations Q2 2025 revenues decreased to $10.8 million, but net income improved to $0.8 million due to a significant reduction in the provision for credit losses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $10,775 | $15,146 | $22,217 | $31,950 | | Interest income from loans | $7,482 | $11,754 | $15,370 | $24,395 | | Provision for credit losses | $925 | $8,503 | $1,977 | $9,868 | | Total operating expenses | $9,709 | $18,263 | $20,122 | $30,793 | | Net income (loss) | $1,887 | $(3,056) | $2,791 | $1,615 | | Net income (loss) to common shareholders | $769 | $(4,124) | $556 | $(476) | | Basic and diluted EPS | $0.02 | $(0.09) | $0.01 | $(0.01) | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly decreased, while financing activities provided net cash, leading to a $4.4 million increase in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $692 | $11,179 | | Net Cash (Used in) Provided by Investing Activities | $(2,658) | $27,534 | | Net Cash Provided by (Used in) Financing Activities | $6,374 | $(40,734) | | Net Increase (Decrease) in Cash | $4,408 | $(2,021) | | Cash and cash equivalents – End of Period | $22,474 | $10,577 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, loan portfolio analysis including increased non-accrual loans, new senior secured notes, and stock-based compensation issues - The company specializes in originating, underwriting, and managing a portfolio of short-term (one to three years) first mortgage loans secured by residential or commercial real estate, primarily in the northeastern and southeastern U.S.[25] - As of June 30, 2025, loans held for investment on non-accrual status had an outstanding principal balance of $119.6 million, a significant increase from $87.0 million at December 31, 2024[45] - On June 11, 2025, an indirect subsidiary consummated a private placement of $100.0 million in Senior Secured Notes due 2030, with an initial draw of $50.0 million. The notes bear a fixed interest rate of 9.875%[84] - A grant of 420,168 restricted Common Shares to CEO John L. Villano was rescinded after it was determined that this and prior grants exceeded the 100,000 share annual limit per individual under the company's equity plan[99][101] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 revenue decline due to lower originations and non-performing loans, improved net income from reduced credit losses, and bolstered liquidity Loan Portfolio Analysis The loan portfolio increased to $384.7 million with a 12.72% weighted average interest rate, concentrated in Connecticut and Florida, primarily secured by residential properties Loan Portfolio Statistics | Metric | As of June 30, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Number of loans held for investment | 135 | 157 | | Gross principal amount (in thousands) | $384,739 | $376,991 | | Weighted average contractual interest rate | 12.72% | 12.53% | Loan Portfolio by State (June 30, 2025) | State | Gross Amount (in thousands) | Percentage | | :--- | :--- | :--- | | Connecticut | $113,107 | 29.4% | | Florida | $110,822 | 28.8% | | Massachusetts | $56,213 | 14.6% | | New York | $30,519 | 7.9% | | Other | $74,478 | 19.3% | | Total | $384,739 | 100.0% | Results of Operations Q2 2025 revenue decreased by 28.9% due to lower originations, but net income improved significantly to $0.8 million from reduced credit loss provisions - Q2 2025 revenue decreased by $4.3 million (28.9%) YoY, attributed to lower net new originations and a higher amount of nonperforming loans[133] - Q2 2025 operating expenses decreased by $8.6 million (46.8%) YoY, mainly due to a $7.6 million reduction in the provision for credit losses[134] - Book value per common share was $2.54 as of June 30, 2025, a decrease of $0.10 from $2.64 at December 31, 2024. The decline was primarily due to dividend payments of $7.0 million ($0.15/share) exceeding net income of $2.8 million ($0.06/share) for the six-month period[140] Liquidity and Capital Resources Liquidity improved with cash increasing to $22.5 million, bolstered by a new $50 million credit facility and a $100 million senior secured notes placement - Total assets increased by $9.8 million (2.0%) to $501.8 million in the first six months of 2025, while total liabilities increased by $13.5 million (4.4%) to $323.9 million[141][142] - In March 2025, the company entered into a new Credit Agreement with Needham Bank for a $50 million revolving credit facility, replacing a prior facility[149] - In June 2025, the company completed a private placement of $100 million in Senior Secured Notes due 2030, drawing an initial $50 million. The company expects to draw the remaining $50 million in September 2025 to redeem $56.3 million of maturing unsecured notes[150] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Sachem Capital Corp. is exempt from providing quantitative and qualitative market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[156] Controls and Procedures Management concluded disclosure controls and procedures were ineffective due to a material weakness in stock-based compensation internal controls, with remediation ongoing - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025[157] - The ineffectiveness is due to a material weakness in internal control over financial reporting related to stock-based compensation, previously disclosed in the 2024 Form 10-K[157] - The company is actively engaged in a remediation plan, which includes strengthening review and approval processes for equity awards. These efforts were ongoing as of the end of the quarter[158] Part II Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, and officer certifications - Lists various agreements and corporate documents filed with the report, including the Note Purchase and Guaranty Agreement for the new Senior Secured Notes, the new Credit and Security Agreement with Needham Bank, and the 2025 Omnibus Incentive Plan[161][162] - Includes certifications from the Chief Executive Officer and Chief Financial Officer as required under Sections 302 and 906 of the Sarbanes-Oxley Act[162]