Sachem Capital(SACH) - 2021 Q3 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Sachem Capital's unaudited financial statements detail its financial position and performance for Q3 2021 Balance Sheets Total assets grew to $313.4 million by September 30, 2021, fueled by mortgages receivable and equity from stock offerings Balance Sheet Highlights (in USD) | Account | Sep 30, 2021 (Unaudited) | Dec 31, 2020 (Audited) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $313,351,751 | $226,670,184 | +38.2% | | Mortgages Receivable | $219,963,291 | $155,616,300 | +41.4% | | Cash and cash equivalents | $19,242,316 | $19,408,028 | -0.9% | | Total Liabilities | $154,593,669 | $145,750,644 | +6.1% | | Notes payable (net) | $110,394,395 | $109,640,692 | +0.7% | | Total Shareholders' Equity | $158,758,082 | $80,919,540 | +96.2% | Statements of Comprehensive Income Total revenue increased 62.5% to $20.9 million for the nine months ended September 30, 2021, driving net income growth Income Statement Summary (Nine Months Ended Sep 30, in USD) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $20,948,451 | $12,894,752 | +62.5% | | Interest income from loans | $15,307,692 | $9,640,387 | +58.8% | | Total operating costs | $11,915,593 | $6,250,875 | +90.6% | | Net Income | $9,032,858 | $6,643,877 | +36.0% | | Net income to common shareholders | $8,100,769 | $6,643,877 | +21.9% | | Diluted EPS | $0.32 | $0.30 | +6.7% | Income Statement Summary (Three Months Ended Sep 30, in USD) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $8,522,376 | $4,271,808 | +99.5% | | Net Income | $4,300,615 | $2,138,784 | +101.1% | | Net income to common shareholders | $3,386,824 | $2,138,784 | +58.4% | | Diluted EPS | $0.12 | $0.10 | +20.0% | Statements of Changes in Shareholders' Equity Shareholders' equity significantly increased to $158.8 million by September 30, 2021, primarily from preferred and common stock offerings - For the nine months ended September 30, 2021, the company issued 1,903,000 shares of preferred stock for net proceeds of $45.5 million and 6,096,448 shares of common stock for net proceeds of $30.9 million[23] - Dividends paid during the first nine months of 2021 totaled $6.1 million for common stock and $932,089 for preferred stock[23] Statements of Cash Flows Net cash from operating activities was $17.4 million, while investing activities used $84.9 million, resulting in a slight cash decrease Cash Flow Summary (Nine Months Ended Sep 30, in USD) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $17,374,582 | $7,389,446 | | Net Cash used for Investing Activities | ($84,941,629) | ($41,361,462) | | Net Cash from Financing Activities | $67,401,335 | $20,514,152 | | Net (Decrease) in Cash | ($165,712) | ($13,457,864) | | Cash at End of Period | $19,242,316 | $5,384,073 | Notes to Financial Statements The notes provide detailed context for the financial statements, covering accounting policies, fair value measurements, and specifics on assets, liabilities, and equity - The company specializes in short-term (one to three years), secured, non-banking "hard money" loans to real estate investors, primarily in Connecticut, secured by first mortgage liens[34] - The company elected to be taxed as a Real Estate Investment Trust (REIT) for federal income tax purposes starting with its 2017 tax return, requiring it to distribute at least 90% of its taxable income annually[53] - The company's mortgage loan portfolio includes 157 loans with future funding obligations totaling $61,707,185 as of September 30, 2021[85] - The company's loan portfolio is geographically concentrated, with approximately 59.51% in Connecticut, 21.09% in Florida, and 10.69% in New York[92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue and loan portfolio growth, strategic initiatives, and challenges, including financing strategy and REIT status Review of the first Nine Months of 2021 and Outlook Revenue grew 62.5% and net income 21.9% for the first nine months of 2021, driven by mortgage growth and strategic initiatives - The company's primary business objective is to grow its loan portfolio while protecting capital to provide attractive risk-adjusted returns to shareholders, primarily through dividends[115] - Strategic initiatives include focusing on larger-value commercial loans, driving operational excellence through automation, and developing relationships with larger wholesale brokers[115] - Challenges for the remainder of 2021 include increased competition, borrower expectations for better terms leading to rate compression, and increased operating expenses[122][123][125] - As of September 30, 2021, the company had unfunded commitments of $61.7 million, primarily due to an increase in construction loan originations in the Florida market[126] Operational and Financial Overview The company's capital structure is balanced with 49.3% debt and 50.7% equity, facing portfolio yield compression and borrower concentration - The company's capital structure as of September 30, 2021, is approximately 49.3% debt and 50.7% equity[130] - At September 30, 2021, one borrower's outstanding loans represented 10.2% of the mortgage loan portfolio, and a second borrower's obligations, on a fully funded basis, would represent approximately 10.0%[130] - The yield on the mortgage loan portfolio was 11.92% for the nine months ended September 30, 2021, down from 12.28% for the same period in 2020, indicating interest rate compression[134] Financing Strategy Overview The company's financing strategy leverages debt and equity, with $144.6 million in outstanding debt and a new $200 million repurchase facility - In June and July 2021, the company raised approximately $45.5 million in net proceeds from the sale of its Series A Preferred Stock[138] - Total outstanding debt at September 30, 2021, was approximately $144.6 million, including a $30.1 million credit line and $114.5 million in unsecured notes[140][144] - On July 21, 2021, the company established a $200 million master repurchase financing facility with Churchill, allowing it to sell mortgage loans to raise capital at a rate based on 30-day LIBOR plus a spread of 3%-4%[145] Results of Operations Total revenue nearly doubled in Q3 2021 and grew 62.5% for the nine-month period, driven by interest income despite rising costs Q3 2021 vs Q3 2020 Performance (in USD) | Metric | Q3 2021 | Q3 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | ~$8.5M | ~$4.3M | +99.5% | | Interest Income | ~$6.1M | ~$3.5M | +75.5% | | Operating Costs | ~$4.2M | ~$2.1M | +97.9% | | Net Income to Common Shareholders | ~$3.4M | ~$2.1M | +58.4% | Nine Months 2021 vs 2020 Performance (in USD) | Metric | YTD 2021 | YTD 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | ~$20.9M | ~$12.9M | +62.5% | | Interest Income | ~$15.3M | ~$9.6M | +58.8% | | Operating Costs | ~$11.9M | ~$6.3M | +90.6% | | Net Income to Common Shareholders | ~$8.1M | ~$6.6M | +21.9% | Liquidity and Capital Resources The company maintains strong liquidity with $75.3 million in cash and equivalents, supported by significant asset and equity growth - Cash, cash equivalents, and investment securities totaled approximately $75.3 million at September 30, 2021[161] - Total assets increased by 38.2% to $313.4 million at September 30, 2021, from $226.7 million at December 31, 2020[162] - Shareholders' equity increased by $77.8 million, primarily due to net proceeds from the Series A Preferred Stock offering (~$45.5 million) and common stock sales (~$30.9 million)[165] - Net cash provided by financing activities for the nine months ended September 30, 2021 was approximately $67.5 million, driven by stock issuances[168] 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 - As a smaller reporting company, Sachem Capital Corp is not required to provide the information required by Item 3[179] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes - Management concluded that as of September 30, 2021, the company's disclosure controls and procedures are effective[181] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[182] Part II OTHER INFORMATION Risk Factors The company faces significant credit risk due to borrower concentration and liquidity risk from $61.7 million in unfunded commitments - At September 30, 2021, one borrower's loans represented 10.2% of the mortgage portfolio. A second borrower's total funding obligations would represent approximately 10.0% of the portfolio on a fully funded basis, creating significant borrower concentration risk[185] - The company had significant unfunded commitments of approximately $61.7 million as of September 30, 2021. Failure to meet these obligations could lead to legal claims and adversely impact the business[186] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and key agreements - The report includes a comprehensive list of exhibits, such as the Certificate of Incorporation, bylaws, indentures for various note series, key employment agreements, the Master Repurchase Agreement with Churchill, and required CEO/CFO certifications[188]