Good day, and welcome to the Sachem Capital Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr. Kevin Reed, Investor Relations. Please go ahead. Good morning, everyone, and thank you for joining Sachem Capital Corp's Third Quarter 2023 Conference Call. On the call from Sachem Capital today is Chief Executive Officer and Interim Chief Financial Officer, John Villano, CPA, and Vice President of Finance and Operations, Nick Marcello. Yesterday, the company announced its operating results for the quarter ended September 30, 2023, and its financial condition as of that date. The press release is posted on the company's website, www.sachemcapitalcorp.com. In addition, the company filed its quarter-end Form 10-Q with the U.S. Securities and Exchange Commission, which can be accessed on the company's website, as well as the SEC's website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please visit our website. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, the company will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our SEC filings. With that, I'll now turn the call over to John. Thank you, Kevin, and thanks to everyone for joining us today. I am pleased to report Sachem produced solid results in the third quarter despite a persistently difficult macroeconomic backdrop. Stubbornly high inflation, coupled with the market's uncertainty as to the direction of the Federal Reserve's policy, has kept us measured and prudent in our approach with shareholders' capital. With this discipline as our guide, Sachem achieved revenue growth of approximately 30% to $17.5 million compared to the same quarter in 2022, and net income attributable to common shareholders of $5.2 million, or $0.12 per share. Our revenue growth is a direct result of our deliberate underwriting, a solid balance sheet, and in-house liquidity. Further, our experience in navigating difficult lending cycles has allowed us to build a resilient portfolio structured to produce steady, above-average risk-adjusted returns. Having underwritten over $1 billion of loans through a multitude of cycles, we have a forward-looking perspective that is grounded in knowledge learned from past experiences, with an ongoing watchful eye on credit quality and the protection of our assets. It is no longer news that loan originations in the commercial and residential real estate sector have slowed to a trickle, if not stopped completely in some areas, due to the dramatic rise in interest rates over the past two years. Furthermore, in recent weeks, many mid-sized financial institutions, as well as non-bank lenders like Sachem, have reported an increase in non-performing loans in the third quarter. While we view this situation as an opportunistic way to grow market share, we are also mindful of our portfolio management and capital resources. Specifically, we made some significant progress regarding non-performing loans in the quarter, reducing them by approximately 12% quarter-over-quarter. Lastly, loan impairments are down slightly compared to the year-ago nine-month period. The health of Sachem's portfolio resides in the diversity of our loans and the diligence of our underwriting. We have a diversified mortgage portfolio across a variety of asset classes, including multifamily, single-family, and other commercial real estate assets. Our loan portfolio is diversified across 15 states, and as we have said in the past, it is our intent to grow responsibly in the Southeast. Additionally, it is our underwriting practice to lend to borrowers with strong credit profiles and a proven record of performance. Our loans are structured to be short-term in nature. As of quarter end, 283, or 86.5%, of the loans in our portfolio had a term of one year or less. As part of our process, this structure allows us to reprice capital quickly to better protect our margins in this rising interest rate environment. In keeping with our disciplined approach and our ongoing cautionary view of the lending marketplace, our originations have continued to trend below our recent historical levels. In the third quarter, we had net fundings of approximately $53 million of mortgage loans, including loan modifications and construction draws, that were offset by approximately $59.2 million of principal paydowns. A significant portion of our paydowns resulting from the successful completion of one of Sachem's largest projects to date, a $22 million construction loan in Sarasota, Florida, highlighting the execution of our business plan. While our originations have been curtailed, similar to others in the industry, we continue to build a robust pipeline for modifications and construction loans. As our capital continues to cycle, we are poised to redeploy into higher-yielding loans with well-capitalized sponsors. We have sufficient capital and therefore can be opportunistic, yet selective, to capitalize on situations when deemed appropriate. Our focus remains primarily on residential and multifamily loans, where, due to a lack of housing supply, prices and demand have remained relatively stable. Due to our disciplined stance and uncertainty on the macro front, we have maintained strong liquidity. We have a balance sheet marked by $638 million in assets, including $62.9 million of cash, cash equivalents, and investment securities, offset with $388.7 million in total debt outstanding. In addition, we have available liquidity of approximately $40 million on our credit facilities. This liquidity affords us significant flexibility to prudently allocate capital in a selective manner. Having liquidity on hand provides market strength and positions us to select the best alternatives for our invested capital. Let me touch on some more key financial metrics in addition to the strong revenue growth and financial flexibility. Total operating costs and expenses for the quarter were approximately $11.3 million, compared to approximately $8.5 million for the third quarter of 2022. The increase was due to higher interest and amortization of deferred financing costs, D&A, compensation, fees, taxes, and other expenses. Interest and amortization of deferred financing costs increased from approximately $6 million in the third quarter of 2022 to approximately $7.7 million this quarter, a change of approximately $1.7 million, or 28.3%. Net income attributable to common shareholders for the quarter was approximately $5.2 million, compared to approximately $4.1 million for the third quarter of 2022. Earnings per share for the third quarter of 2023 were at $0.12 versus $0.11 in the third quarter of 2022. With regard to our portfolio, as of September 30, 2023, we had 327 loans with a total principal balance of approximately $495.7 million, with a weighted average interest rate of 12.2%, not inclusive of fees earned. We had loans with a principal balance of approximately $84.8 million in non-accrual status, which includes 64 loans in pending foreclosure by the company, representing approximately $63.5 million of unpaid principal. During the quarter, the company modified or extended a total of 47 loans. These modifications resulted in gross fee income of approximately $1.1 million, supplementing our reduced origination fee income. As we have discussed in the past, we believe the value of the collateral exceeds the total amount due. It is our experience that a troubled or distressed loan rarely loses all of its value, and usually over the term of the loan, when interest income, origination, and other fees are considered, the overall transaction is profitable. Historically, losses resulting from impaired loans are minimal and pay tribute to the expertise utilized to work out difficult situations. Sachem's record on workout resolutions is quite successful. For the nine months ended September 30, 2023, the company impaired approximately $613,000 of loans and had a loss on the sales of real estate owned of $72,000. As of September 30, 2023, real estate owned was approximately $3.9 million, compared to $5.2 million at year-end 2022. Specifically, real estate owned included approximately $826,000 held for rental and approximately $2.7 million held for sale. With regard to our dividend, the Board authorized an $0.11 per share dividend paid on November 7th, 2023, to shareholders of record as of October 31st, 2023. Our Board regularly evaluates our dividend distribution policy on an ongoing basis, balancing our operational performance, federal tax requirements, and the importance of maintaining long-term financial flexibility. In closing, our disciplined approach to operating our business and managing our portfolio has positioned us for ongoing profitability and continued growth in the future. We have built a resilient, well-diversified portfolio and a strong balance sheet, which gives us confidence as we navigate the current environment. We fully understand our financial flexibility means increasing cash liquidity, which in the near term may potentially result in a short-term drag on earnings. Our management team believes this action to be prudent in this environment. We will continue to have a clear eye on asset protection and continue to expand the platform to build long-term shareholder value. With that, we will now open the call for questions. Operator? Thank you. I'll begin the question- and answer- session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. First question will be from Christopher Nolan with Ladenburg Thalmann. Please go ahead. Hey, John. How would you characterize the average term of a loan in the third quarter versus, you know, earlier in the year? Is it longer, just more borrowers are asking to extend and so forth? A good question, Chris. So here, every one of our loans are a one-year term. There are rare circumstances where we may go to 18 months or even 24 months. Those are rare. What we're seeing now is our borrower is coming to the end of term. In normal circumstances, there would be either a sale or a refinance if this is a long-term holding for them. R ight now, the refinance option is just taking a long time, so what we're doing is we're giving them additional time. and this is always if the loan is performing as we've agreed and in accordance with the loan docs. So what we're finding now is the loans are going a little bit longer as we modify to give them time to refi or time to even to complete a project. So we're probably moving from 12 months-18 months. Overall, the average term is still less than 12 portfolio-wide, but we are extending to give our borrowers a reasonable chance to work out of their contract with us. Got it and then I noticed that your unrestricted cash holdings have increased in the quarter. G iven that you have a bond due in June 2024, is the idea to just build up cash and use that to pay down the maturing bond? As a last resort, yes. So we are building a war chest, not only for the upcoming bond in June, there's also one coming due later in the year, in December. So we want to be liquid first. You know, when we consider the macroeconomic environment that we're operating in, I think cash is valuable. So we're blending now, the cash need for our bonds, the cash need for opportunity, and then the cash for safety. So there's a little bit of a tug-of-war going on here, trying to be prudent with our shareholders' capital. We have a clear eye on what's coming due in June. We will be ready for it. Hopefully, the markets loosen up a bit, and we can refinance. I believe that first series of bonds are at 6.875%. It's kind of a far cry from where we are today, so it may be non-accretive if we have to go to the markets to get it. But in any case, cash in our bank is earning 12 + 2. So we're still trying to figure that out. Great. Thank you and final question. I estimate your investment spreads widened over the quarter. And given that you also did a reserve allowance release, is the thought that maybe given you can run with a little less leverage than before? Is the idea to dial back the leverage or just to keep the leverage similar levels? What we do is we manage the portfolio based on our bond covenants. We can lend every single penny we have, which wouldn't be prudent, you know, nor wise in this world that we're in. So we're remaining a lot of space between the top end of our bond covenants. Yes, our margins have widened a bit. We are now in this quarter seeing some pressure at the 13 and three level, where deals and projects are not workable at those rates. So that is looking to be the top end for us at the moment and, you know, we're falling back to our, you know, customary 12 and 12% and 2 origination points, and those deals are still getting funded. Great. That's it for me. Thank you for taking my questions. Thank you. Next question will be from Tyler Batory, Oppenheimer. Please go ahead. Thank you. Good morning. John, can you talk about your approach to originations here? You know, what does the pipeline look like? You know, you think this Q3 number, you know, is a good run rate to be thinking about the next couple of quarters? So yes, we're planning on doing, you know, somewhere in the vicinity of $50 million in originations through the third quarter. We do have some expected large loan payoffs coming due, which may increase that number, but we're kind of figuring out $50 million. We have a bunch going this week. But I wouldn't push further than that. I think that'll be a very consistent number for us to work with. Okay, great and then in terms of the, the competitive environment, you know, some of your peers, some that, you know, maybe less well-capitalized, some have a different approach to the business. Just kind of talk about how they're doing, and, and, you know, I'm really interested if, you know, if that can be a potential opportunity for you. Yes, first of all, certainly it is an opportunity. Just last week, we assisted a refinance of a loan in Central Florida with a smaller lender, a small public lender. So we will step up and do certain deals if they meet our guidelines. But, you know, let truth be told, a lot of the lenders that are not distress funds, they're struggling. You know, they have the same capital constraints that we have, not as well capitalized. Their balance sheet is not as strong. They may have partners, as opposed to shareholders, that demand cash and, you know, extract cash from the ongoing operations when there's a little bit of a panic. So there's a lot of, first of all, competition from distress, but the on....t he regular business lenders are struggling. I'll throw banks into that mix, your local bank is struggling, they don't know what to do, they can't get deals done. We are seeing great deals come through here that, you know, these borrowers should be at a bank. You know, they should be SBA, they should be at a bank, and they should be getting much better rates than we can offer. It's just not there. So you have tightness at the, you know, at the marginal borrower level. You have tightness with the better borrower that expects great rates from the banks and great service, they're not getting it. So we're getting a look at all of this, and our guidelines, they're pretty stiff right now. We're asking a lot of questions, and you've got to have a pretty good resume to get a loan here at the moment. So, we kind of like this. We wish we had an extra $100 million to go to work with, but competition is fierce from distressed funds. They think everything's distressed. Not really the case yet. It's not. There are people looking to fund and complete projects, and they're having trouble getting the capital that they need. Okay. That's great detail. That, that's all from me. Thank you. Thank you. Next question will be from Matthew Erdner of Jones Trading. Please go ahead. Hey, good morning, guys. Thanks for taking the question. Yeah, I saw a new line item on the balance sheet, investments in rental real estate. You know, could you kind of expand on that and tell me what that is? Thanks. Yes. So during the quarter, we purchased a piece of commercial real estate. It is an office project. It is one-third leased. It is the former Bridgewater estate. Bridgewater, the PE firm owned by Ray Dalio. We bought their corporate offices. Part of our play there is to develop a portion of the property into residential housing, which we're working on at the moment. A successful completion of the residential portion of the project will reduce our basis in the property to 50%. So we think it's a good long-term hold. Sachem will take a piece of that business. We've had very good leasing interest from some very large players. The building is 50,000 sq ft, approximately. We think it's a great project, and it's a way for us to reduce our exposure in a commercial office product. Yeah, that's helpful. Just if you didn't know the project, Matt, is in Westport, Connecticut. Got it. Thank you and then should we expect things like this going forward, or is this just a one-time opportunity, that you guys felt like you could capitalize on and provide some value add there? No, this, this is a good question, so bear with me on this answer. It is a one-time project. It is a project brought to us by our Urbane group. We bought them a year ago. They go out, and they'll look for projects that are accretive to us, and they search this out. They're involved. We're, we're wrapping up a project with them now in Westport, which is the sale of a 12-unit condo building on the river, right downtown. So they've, they've identified this property. The same team is going to develop the building, also do the permitting for the residential. Got it. Thank you. Thank you. Again, if you have a question, please press Star, then one. Next question will be from Chris Muller of JMP Securities. Please go ahead. Yeah, thanks for taking the question, and congrats on a nice quarter. So John, you talked about in the past, doing larger loans, given the lower levels of competition out there. So I guess, are new loans continuing to trend larger, and what is your outlook for that into 2024 as more of the regular way competition returns to the market? Well, you know, the smaller loans don't have the margins, you know, in terms of profits to the developer, that they used to. You know, properties are fairly priced, and when you factor in, whether it be permitting costs, renovation, or even our debt service, the smaller project just can't get done here anymore. So we're focusing on larger deals where, you know, should the developer slip a bit, he has room to succeed. So we're looking for deals that have better margins, which, you know, most often will take you to a little bit of a larger deal, better quality sponsor, better capitalized sponsor. And we've had better success with that. Very few of these projects go off without a hitch. Got it. That's helpful. T hen I guess on the CECL recovery, is that driven more from the macro picture changing from the last quarter, or is it more behind, like, the NPL reduction, and asset-specific improvements? For this question, Chris, Nick Marcello is on the call here. He's our Vice President of Finance and Accounting. Nick, would you mind helping me with this one? Yeah, absolutely. Hey, Chris. So that CECL, that recovery of CECL is a result of the mortgage portfolio shrinking a bit during the quarter. Our CECL reserve's done on a portfolio basis, so you'll see, quarter-over-quarter, you saw a little bit of shrink, of shrinkage in the mortgage balance as a whole, as a result of that large payoff that John referenced on the call. Got it. Very helpful. Thanks for taking the question. Thank you. That concludes our question and answer session. I'd like to turn the call back over to Mr. John Villano for closing remarks. Thank you, everyone, for joining us today. We look forward to updating you again next quarter. Thank you. Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.