Good morning, ladies and gentlemen, and welcome to the Sachem Capital Third Quarter 2021 Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, David Waldman with Investor Relations. Sir, the floor is yours.

Good morning, and thank you for joining Sachem Capital Corp.'s Third Quarter 2021 Conference Call. On the call with us today is John Villano, CPA, Chief Executive Officer and Chief Financial Officer of Sachem Capital. Yesterday, November 4, the company announced its operating results for the third quarter ended September 30, 2021, 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 Form 10-Q with the U.S. Securities and Exchange Commission on November 4, 2021, which can also 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 like any additional information about the company, please contact Crescendo Communications at (212) 671-1021. Before Mr. Villano reviews the company's operating results for the third quarter of 2021 and the company's financial condition at September 30, 2021, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations, are forward-looking statements. The words anticipate, estimate, expect, project, plan, seek, intend, believe, may, might, will, should, could, likely, continue, design and the negative of such terms and other words and terms of similar expressions, are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to several risks, uncertainties and assumptions as described in the company's quarterly reports on Form 10-Q for the third quarter of 2021 filed with the U.S. Securities and Exchange Commission on November 4, 2021, as well as its annual report on Form 10-K filed on March 31, 2021. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements. In addition, either the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. With that, I'll now turn the call over to John Villano. Please go ahead, John.

Thank you, and thanks to everyone for joining us today. I am pleased to report that our company once again achieved solid financial results for the third quarter of 2021. Our quarterly revenue increased 100% to $8.5 million compared to $4.3 million for the same period in 2020. The increase in quarterly revenue was due in large part to an increase in interest income on our loan portfolio, which increased to $6.1 million compared to $3.5 million for the same period last year. We also benefited from an increase in investment income, gain on the sale of investment securities, as well as origination and other fees. As a result, we achieved net income attributable to common shareholders of approximately $3.4 million and generated over $17 million of cash flow from operations. We believe these results provide strong validation that our long-term strategy is working. Importantly, with the proceeds of our recent Series A preferred offering, combined with the addition of our Churchill credit facility, we are poised for further growth during the balance of the year and beyond. At the same time we are diversifying our holdings, including larger loans with established developers, we are also looking for opportunities as we expand the geographic footprint of our mortgage portfolio beyond Connecticut. We will continue to grow our lending operations while maintaining strict underwriting criteria and a conservative loan-to-value ratio. Despite the excess liquidity in our lending markets, we will continue to focus on lending policies that continue to grow our loan portfolio while protecting and preserving our invested capital. As we have stated in the past, we believe there will be several key drivers to our growth and future performance. First, the overall economic climate has improved due to the easing of restrictions imposed by states post-COVID, which is having…

[Operator Instructions] Your first question for today is coming from Christopher Nolan.

Christopher Nolan, Ladenburg Thalmann. Good quarter, John. On the Churchill facility, is there a particular profile of loans that they buy, commercial versus residential, geography, the term of the loan?

So with respect to Churchill, they are, in our eyes, strictly a residential fix-and-flip lender. We have a dollar limitation on a per-property basis of $3 million. Interest rates on this can range from 4% down to 3%. The facility is $200 million. And as of September 30, our lending operations with Churchill have not been utilized. Since then, we have drawn just a little bit of money, about approximately $7 million from them. So yes, they're very selective. They're looking for high-quality residential fix-and-flip deals.

Do they buy the loans at face value? Or is there some sort of discount?

So what we do is, for example, if it's a $1 million loan, our advance would be 70%.

And finally, this is lower-cost funding compared to your other sources. Is the intention to sort of utilize this like a bank facility, given the short-term nature of your loans?

It's kind of interesting. Yes, it does great things to our overall cost of capital. Our unsecured bonds are considerably more than the 4% Churchill funds. But a full utilization of Churchill will be in effect, securitizing our portfolio. And we kind of like operating on an unsecured basis, so we are very selective in the loans that we provide to them for our advances. And we will continue to use them, but not every deal that we do will fit. So it kind of fits really well with our move to larger, better-established developers and investors. So that's kind of why we put that in place. And the second thing is, Chris, we do have a 50-state run with them. We're not limited to Connecticut and New England.

Our next question is coming from Tyler Batory.

Tyler Batory here with Janney. First one I have is just on the growth in the loan portfolio, extremely strong in the quarter. How much of that is kind of market growth versus you taking share? And then, when you look ahead, can you talk a little bit more about the loan pipeline and just help us think about what might be realistic in terms of future loan growth in the next couple of quarters here?

So in terms of loan growth, we are really jumping on our Web advertising. We are working with brokers in selected areas, really looking for strong deal flow from brokers. In the past, we have never tried to build relationships with brokers. It was basically, "Hey, I'll bring you a deal when I have a deal." We're trying to become better business partners with them. And to that end, we have a few brokers in our network now that are providing good, high-quality deals really in areas that we want to grow. And then, coupled with that, we've kind of jumped on the advertising a bit for the last couple of quarters, where we're starting to get some footholds. We rank pretty high in Google searches, and we can pinpoint our advertising to the markets that we really want to serve as opposed to a shotgun approach. With respect to our work in process, wow, I mean, we may have 100 loans in the pipeline today. Not all of those get closed. Some will just fall off just because the borrowers have found financing elsewhere. But we do get a look at a lot of pitches. And quite honestly, our underwriters are overwhelmed. We have intentions to bring more on board. And it's kind of clicking pretty well here. And the final part of our growth is that we're a very reputable lender. We're able to work with our borrowers. Their success equals our success. And our job is, yes, we want to earn for our shareholders and earn for the company; but in the end, we need our borrowers to be successful, as well. And we go to lengths to try to assist them in reaching their goals, as well, and that catches on. People hear about that. And quite simply, when a loan runs its 12-month term, a lot of our competition sends out a demand letter, right, "Pay me or else." And those people are now becoming our clients.

Just to follow up, can you get more specific on expanding the footprint outside of Connecticut? Interested how you're progressing in Florida and Texas specifically.

Our Texas growth has been slower than anticipated. We have activity down there. We now have an individual in that area. We've just upped our advertising in that area. It's coming slowly. It's coming slowly. To that end, we have just hired a Business Development Officer to kind of put some gasoline in that tank for us. Our Florida operations are pretty robust. We have a lot of demand coming from Florida. We advertise really from Palm Beach to Tampa and south. We do have some deals up in the Orlando area, but not as many as we would like. So Florida is coming along. We're starting to get some activity in North and South Carolina, so we're going to focus on the eastern seaboard. And it's getting there, it's slow. I mean, we've always grown our business in a very conservative way. We're not gunslingers pumping $100 million into Charleston, South Carolina tomorrow. We're giving these loans time to just see their quality, right? All the loans look good. We need to vet out the borrowers. And that's the result of just giving it some time looking at payment histories. And then we'll further increase our investment in those areas or back away without damage.

[Operator Instructions] Your next question is coming from Brian Hollenden.

It's Brian Hollenden from Aegis Capital. Mortgage receivables increased $50 million approximately sequentially. How should we think about that over the next few quarters? Will it be a similar rate? Will that accelerate with some of the initiatives you have going on? Just how should we think about that for the next few quarters?

So first and foremost, as you'll see in our Q, our portfolio weighted average return that does not include origination fees is at 11.7%, down just a little bit from historical levels. So first of all, our growth is really profitable growth. We're not going into areas and giving away cheap money, all right, so I just want to make that clear. Judging by the size of our work in process, we think our fourth quarter is going to be equally as positive as our third quarter. This thing is starting to grow upon itself, where a new borrower becomes a very good borrower. So people come to us, they test the waters. They like how we service their accounts, how responsive we are. And before you know it, we start looking at other deals of theirs. So the growth is now going to start, in my opinion, start to pick up speed here. Once again, we're not throwing money foolishly at these borrowers. Our underwriting has gotten a little tougher. I mean, we kind of know where we are in this real estate market. I'm not sure if I'm in the seventh or eighth inning, but I'm not in the first inning. So we're dropping our LTV. We're asking for more collateral from our borrowers. We're trying to protect our assets the best we can. And the investors and developers that understand that become very good clients, and they have significant deals. So our growth has been tremendous. Our biggest problem, honestly, has been the rapid payoff of our notes. So we're getting payoffs faster than we would like, right? So we want our money to work. We like to make a loan. We like to have it on our books for a while. But the real estate market specifically up here in the Northeast has been pretty robust. Our clients are finishing their properties in reasonable amounts of time, and the buyers are ready and waiting. So unfortunately, we get our money back, and we're able to fill it quickly with our pipeline.

That's a good problem to have. Can you talk a little bit more about the -- you mentioned the satellite offices. Can you talk about the arrangement with those partners, and then how much you're kind of anticipating that will help further accelerate loan growth?

Yes. So this approach is very different than the approach being utilized by the big-market REITS. We all know the [ ready caps ], the MFAS. They're buyers of notes and competitors of ours. It's a good model for them. It's not for us. We need to know that someone has a feel of the borrower, right? They have to know the borrower. They have to be able to pick up a phone and talk to them and see how they're doing. And that's why we're looking for affiliations with satellite offices, and we have those negotiations going on now. We are looking to help bankroll them, right? Many of you may remember where our company came from, right? We were a partnership at one point, struggling with lack of capital. It was a family-and-friends raise all the time. And these guys have great businesses, but no liquidity. And our job is to get involved with them and use their knowledge of the local area. And truly were backstopped by their family and friends and their own personal capital. That's the way we like to lend. We want to be their partner and not just buy the notes and go our merry way. So that's our approach. We think it has great potential. And like I said, we just hired a business development guy in Florida now that's going to be handling a lot of this for us. We think it could be a huge add-on. And what's kind of nice is we get to pick the areas that we want to be in, right? So if we want to be in Nashville, Tennessee, well, I'm sure I can go find a small hard-money guy there and partner with him. We don't want to take his business. We just want to be his partner. So this process is new, and it's starting. It's rolling. And maybe by the fourth quarter, I'll be able to report on how we're going with it.

Your next question is coming from Eddie Reilly. Eddie Reilly;EF Hutton;Analyst: This is Eddie Reilly with EF Hutton. I was just wondering, it looks like the effective rate of interest on mortgage receivables jumped a little bit from last quarter. Could you speak to the direction of rates you're currently seeing in the market?

Sure. We all know there's tons of liquidity, and there are people out there that are lending at 6.99%. It looks like 6.99%, but in the end, it's not really. So there's substantial liquidity. Our borrowers have a lot of choices, and we do our very best not to give our money away, right? It costs money to be SEC compliant and to do things the right way. So we do everything we can to protect our margin. And I think I just mentioned earlier that, portfolio-wide, our weighted average rate is 11.7%. And in most cases, our base rate is somewhere between $10 million to $12 million. So we're really able to maintain our rate. Our borrowers, because it's a short-term loan and it's not fully drawn initially, the rates are not as damaging as you would expect. So these people are coming to us really based on prior dealings, based on our reputation, but we are not getting a lot of rate compression. Eddie Reilly;EF Hutton;Analyst: And it looks like late and other fees collected in the quarter jumped sequentially. Could you just talk about that a little bit?

So first and foremost, a lot of our borrowers, if a property is coming up for sale, if they have a contract, they don't pay us the last payment. They pay it at the closing. Some people it's 2 months, some people it's one month. So that's first. Second is the imposition of late fees. To be perfectly clear, most of our borrowers are paid by ACH. We probably have 20 out of almost 500 loans that are notoriously late, right? They're going to bounce [ an ] ACH or something. So our late fees are expensive. What you're also going to find in there is other incidental loan charges, whether it be insurance related. There could be modification fees in there. But we're very attentive to the accounts. We monitor them daily. And our job is really to try to bolster the other income numbers, if we can. Eddie Reilly;EF Hutton;Analyst: Last one from me. I don't think I saw anything about average loan size. Could you kind of give us a sense of what the average loan size was this quarter over last quarter?

So our average loan size is somewhere in the $425,000 range. And between the last 2 quarters, it hasn't moved much. The big thing is, a few years ago, our average loan size was about $275,000. So what you're seeing is our move to, again, larger loans, more seasoned developers. What we were finding is we can't lend $100,000 and do it efficiently. And so now, unless you [ were ] a prior borrower, we're not doing the small stuff. We just can't. So you're seeing that our average loan size will continue to grow. I'm not going to say it's going to be $1 million next quarter, but it should start to level out here. I could see somewhere around $450,000, $460,000 for the fourth quarter. So it will continue to grow. We don't expect it to jump. Eddie Reilly;EF Hutton;Analyst: Got it. Got it. Appreciate it. Congrats.

Your next question is coming from Paul Drees.

This is Paul with Market Edge. Regarding shareholder proposal #2, can you just comment on the level of response that you've had to date, realizing that you need to get to 50% yes? And any color that you can provide, for those that are hesitant to vote yes, what are the concerns?

Let me see if I can get the last report. So the difficulty that we are having, when you have a proposal such as this -- so for example, when you vote for the directors, non-votes, broker non-votes don't go against you. But with a specific proposal with respect to the capital of the company, it has to be an affirmative vote. So broker non-votes and real no votes, or no-go votes, work against you. So even though we need a 50%-for vote, the people that haven't voted, that number is substantial. So it's like 8 million or 9 million shares that have just not voiced an opinion, yes or no. A lot of people get their proxies in the mail, and they end up in a trash can at some point. And honestly, a lot of our shares, they're widely distributed. We don't know where the shares are, so these non-votes are working against us. And when we think it's people that just either they don't know the deal, what we're trying to do, or they just -- I don't know. They don't care. They never voted before. They're letting it go. But the non-votes, the broker non-votes are our biggest ordeal. But Paul, let me just add one thing here. Having the shares, it will be positive for the company. So I talked briefly about having to reserve almost 50 million shares for our preferred stock. We are selling some stock in the ATM for capital. But hey, having shares is aggressive in nature, right? We could do things. We could either buy companies, look at opportunities. And it's also defensive in nature as well. And that's one thing that we really didn't touch on in the earnings call. But should these markets change, we're going to want shares, right? So the shares will provide balance and ballast to our company should the real estate markets get screwballed. So that's kind of what we're looking for here. Using preferred shares to bolster our capital is nondilutive. Nobody wants to be diluted. I get it. But without those shares, we can't even consider it.

There are no more questions in queue. I would now like to turn the floor back over to John for any closing comments.

Well, thank you, everyone, for participating in our third quarter conference call. We will do this again when we report on our K in February or March of 2022. Thank you all.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.