Sachem Capital(US:SACH)2024-05-10 13:00Part I FINANCIAL INFORMATION Financial Statements (unaudited) The company's total assets slightly increased to $626.5 million as of March 31, 2024, from $625.5 million at year-end 2023. For the first quarter of 2024, total revenue grew to $17.2 million from $14.7 million year-over-year, but net income attributable to common shareholders decreased to $3.6 million ($0.08 per share) from $4.2 million ($0.10 per share) in Q1 2023, primarily due to a significant increase in the provision for credit losses and higher interest expenses. Cash flow from operations was $4.2 million Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,413 | $12,598 | | Mortgages receivable, net | $482,690 | $491,712 | | Total assets | $626,527 | $625,539 | | Liabilities & Equity | | | | Notes payable, net | $282,959 | $282,353 | | Total liabilities | $389,084 | $395,464 | | Total shareholders' equity | $237,443 | $230,075 | | Total liabilities and shareholders' equity | $626,527 | $625,539 | Consolidated Statements of Comprehensive Income Q1 2024 vs Q1 2023 Performance (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $17,201 | $14,708 | | Interest income from loans | $12,641 | $10,983 | | Total operating costs and expenses | $12,531 | $9,588 | | Provision for credit losses related to loans | $1,312 | $102 | | Net income | $4,670 | $5,120 | | Net income attributable to common shareholders | $3,649 | $4,195 | | Basic and Diluted EPS | $0.08 | $0.10 | Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $4,217 | $5,009 | | Net Cash Provided by (Used in) Investing Activities | $4,319 | $(33,955) | | Net Cash (Used in) Provided by Financing Activities | $(2,721) | $25,565 | | Net Increase (Decrease) in Cash | $5,815 | $(3,381) | Notes to Consolidated Financial Statements - The company specializes in originating, underwriting, and managing a portfolio of short-term (one to three years) first mortgage loans, also known as "hard money" loans, primarily in the northeastern and southeastern U.S.27 - The company adopted the Current Expected Credit Loss (CECL) standard on January 1, 2023, resulting in an initial allowance adjustment of $2,489,574 charged to accumulated deficit36 - As of March 31, 2024, loans on nonaccrual status had an outstanding principal balance of approximately $85.7 million, up from $84.6 million at year-end 202382 - The mortgage loan portfolio is geographically concentrated, with 39.8% of properties in Connecticut, 26.2% in Florida, and 13.3% in New York as of March 31, 2024141 - As of March 31, 2024, the company had future funding obligations (unfunded commitments) totaling $95.5 million related to its construction loans133169 Unsecured Notes Payable Outstanding (as of March 31, 2024) | Maturity Date | Interest Rate | Principal Amount (approx. in millions) | | :--- | :--- | :--- | | June 30, 2024 | 7.125% | $23.7 | | Dec 30, 2024 | 6.875% | $34.5 | | Sept 30, 2025 | 7.75% | $56.4 | | Dec 30, 2026 | 6.00% | $51.8 | | March 30, 2027 | 6.00% | $51.9 | | June 30, 2027 | 7.125% | $30.0 | | Sept 30, 2027 | 8.00% | $40.3 | - On April 1, 2024, the company declared a dividend of $0.11 per share, paid on April 16, 2024154 Management's Discussion and Analysis of Financial Condition and Results of Operations In Q1 2024, revenue increased 17.0% YoY to $17.2 million, driven by higher interest income, while net income attributable to common shareholders fell 13.0% to $3.6 million due to a 1,192.4% increase in provision for credit losses and higher interest expenses. The company's primary objective is to grow its loan portfolio while preserving capital amid challenges like a high interest rate environment and increased competition. Total debt stood at approximately $377.6 million. The company believes its strong balance sheet, pricing power, and access to capital position it to navigate the current market Company Overview and Outlook - The company operates as a real estate investment trust (REIT), specializing in short-term (three years or less) loans secured by first mortgage liens on real property157 - Key challenges for 2024 include the high interest rate environment, geopolitical concerns, increased competition from private lenders, and property value fluctuations, particularly in commercial real estate161162163164 - The primary business objective for 2024 is to grow the loan portfolio while protecting capital, focusing on larger-value commercial loans with experienced sponsors and enhancing operational efficiency159 Financing Strategy and Debt - The company has no formal policy limiting debt but is subject to a 150% asset coverage ratio covenant from its debt agreements. As of March 31, 2024, the capital structure was approximately 60.3% debt and 39.7% equity174177 - Total outstanding indebtedness was approximately $377.6 million as of March 31, 2024, comprising various credit facilities and seven series of unsecured notes175 - Key liquidity sources include a $200 million Churchill master repurchase facility, a Wells Fargo margin loan, and a $65 million Needham Bank revolving credit facility170 Results of Operations Q1 2024 vs Q1 2023 Results Summary (in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | ~$17.2 | ~$14.7 | +17.0% | | Total Operating Costs | ~$12.5 | ~$9.6 | +30.7% | | Net Income (Common) | ~$3.6 | ~$4.2 | -13.0% | - The increase in total revenue was primarily due to a 15.1% rise in interest income from loans. The increase in operating costs was driven by a significant rise in provision for credit losses (from $0.1 million to $1.3 million) and an 8.7% increase in interest and amortization expenses193194 Non-GAAP Adjusted Earnings (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income attributable to common shareholders | $3,649 | $4,195 | | (Subtract)/Add: Unrealized gain on equity securities | $(185) | $(716) | | Adjusted earnings attributable to common shareholders | $3,464 | $3,479 | Liquidity and Capital Resources - Total assets increased by $1.0 million to $626.5 million at March 31, 2024, while total liabilities decreased by $6.4 million to $389.1 million, resulting in a $7.3 million increase in shareholders' equity200201202 - Net cash from operating activities was $4.2 million for Q1 2024, compared to $5.0 million in Q1 2023203 - The company intends to repay or refinance approximately $58.2 million in Notes maturing in 2024 using existing credit facilities, cash on hand, and loan repayments208 Contractual Obligations (as of March 31, 2024, in thousands) | Obligation | Total | Less than 1 year | 1 – 3 years | | :--- | :--- | :--- | :--- | | Unfunded construction loans | $95,457,791 | $61,231,076 | $34,226,715 | | Unfunded partnership commitments | $2,449,967 | $2,449,967 | $0 | | Total | $97,907,758 | $63,681,043 | $34,226,715 | Quantitative and Qualitative Disclosures about Market Risk The company is a smaller reporting company and is therefore not required to provide the information for this item - As a smaller reporting company, Sachem Capital Corp. is not required to provide quantitative and qualitative disclosures about market risk215 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2024, and concluded they were effective. There were no material changes in internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective216 - There were no changes in internal control over financial reporting during the first quarter of 2024 that materially affected, or are reasonably likely to materially affect, these controls217 Part II OTHER INFORMATION Exhibits This section provides a list of all exhibits filed with the Form 10-Q, including governance documents, debt agreements, employment contracts, and certifications - This section lists all exhibits filed as part of the quarterly report, including indentures for various note series, credit agreements, employment agreements, and Sarbanes-Oxley certifications220221