Good morning, ladies and gentlemen, and welcome to the Sachem Capital's Second Quarter '22 Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. David Waldman, Investor Relations. David, over to you.

Good morning, and thank you for joining Sachem Capital Corp.'s Second Quarter 2022 Conference Call. On the call with us today is John Villano, CPA, Chief Executive Officer of Sachem Capital. On August 4, the company announced its operating results for the quarter ended June 30, 2022, 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 plans to file report on Form 10-Q with the U.S. Securities and Exchange Commission, 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, would 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 second quarter of 2022 and the company's financial condition at June 30, 2022, we would like to remind everyone that this conference call may contain forward-looking. 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 words anticipate, estimate, expect, project, plan, seek, intend, believe, may, might, will, should, could, likely, continue, design and the negative of such terms in other words in 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 Form 10-K filed with the U.S. Securities and Exchange Commission on March 31, 2022. 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, neither 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. John?

Thank you, David, and thanks to everyone for joining us today. I'm very pleased to report your company achieved record revenue of $12.5 million, an increase of more than 86% and net income attributable to common shareholders of $4.3 million or $0.12 per share for the second quarter of 2022. It's important to note that we recorded an unrealized noncash loss on securities available for sale. I'll talk more about this accounting adjustment in a moment. But excluding this noncash charge, adjusted earnings would have been a record $5.8 million or approximately $0.16 per share. Overall, we believe our initiatives during the quarter, along with the further diversification of our loan portfolio, both geographically and by loan type, will continue to drive strong financial performance. We are now seeing the results of these initiatives while continuing to maintain an extremely disciplined approach to underwriting and a conservative loan-to-value ratio. During the quarter, we funded approximately $103.3 million of mortgage loans, including loan modifications and construction draws. Our primary business objective for 2022 is to grow our loan portfolio while protecting and preserving capital. Significant interest rate increases over the last 2 quarters has curtailed lending into bank and nonbank real estate markets, thereby reducing competition for our loan products. As banks remain fearful and other nonbank lenders struggle with liquidity and securitization constraints, Sachem can select than originate loans that meet our enhanced underwriting criteria. Diligent loan selection and adherence to underwriting protocols will continue to provide attractive risk-adjusted returns to our shareholders. To this point, we will continue to focus on selectively originating, managing and servicing a portfolio of first mortgage real estate loans designed to generate attractive returns across a variety of market conditions and economic cycles. Further, we are developing relationships with new wholesale brokers and other…

[Operator Instructions] Your first question is coming from Christopher Nolan of Ladenburg Thalmann.

John, given the rise in foreclosed properties, any consideration of putting in a loan loss reserve?

Chris, we write -- once a loan goes into foreclosure, we appraise the property and we impair the asset immediately. So we're not allowed to do loss provisions. We actually write that asset down immediately based on the appraised value and also a reasonable selling concession.

Great. And then given the changing environment strategically, where are you thinking in terms of taking the leverage ratio? This was a time line -- the risk increases but also shows the opportunity. I'm just trying to get your thinking around that.

This is a very interesting time. And we've been posed this question a few times over the past weeks. Sachem Capital was formed in a period much like this. As a partnership, we were formed in 2010. Clearly, a lack of liquidity with the bank's unbelievably tight in providing financing that were troubled assets. So we are quite comfortable in operating in this space. And speaking quite frankly, I would rather lend in this type of environment than a rapidly rising real estate market, as we've seen here for the past really 4 or 5 years culminated by kind of a blow off with COVID. So we like slow and steady. The opportunities are easier to judge when people start paying over and above asking prices for property. That doesn't bode well for long-term success of the markets. And so we have been careful now for the past 2 quarters. We are terribly busy. We are seeing our competition look to us to assist with hung up deals on their end because their liquidity has dried. We think this is going to be good. And our main goal here, Chris, is to -- is to still borrow funds and use our ATM effectively. Effectively is to not overleverage and also not to blow up our cost of capital. So we look forward to the upcoming year here.

Your next question is coming from Tyler Batory of Oppenheimer.

First one for me. Can you just talk a little bit more broad strokes in terms of the loan pipeline, what it looks like today versus a few months ago? Any other notable changes in terms of the opportunities that you see?

Okay. So first and foremost, our loan pipeline for the first half of this year is roughly about $100 million of, let's call it, applications in-house. Now we don't fund all of those. And we probably fund probably 2 out of 10. So what we -- our demand is truly off the charts. It is coming from all over the country. It is coming from smaller lenders like ourselves where their capital structure has been pressured with the interest rates here. We are looking to -- because we have such a volume of activity, we are picking and choosing the deals that we want to do. And a good example of this is a marketing meeting we had this week where we had 7,000 loan applications. And out of that, we closed 21 loans. Kind of tells -- it should tell you where the world is. Everyone is looking for capital. Those with it can be very picky about the loans they choose. And most importantly, we don't have that interest rate compression that we've been fighting for the past 1.5 years. So we're kind of looking forward to getting back to our 12 and 2 and maybe even increasing that a bit.

Okay. Excellent. Very helpful. And another general question. When you look out the next 12 months and we'll kind of have to see how the world evolves. But best guess, what's your expectation, what's your plan in terms of funding sources and what you think might make the most sense?

That's a good question, and that's an ongoing dilemma here. So first and foremost, we utilized our ATM to provide ballast to our lending operation. Our ATM is done at prices above book value. It is -- our stock performs well when our ATM is functioning. And in my opinion, it allows investors of size to accumulate our shares. And it's money that we used to increase our debt covenants with our unsecured bonds. So with our unsecured notes, we have a 1.5x asset coverage ratio, and we're very protective of that covenant. So instead of going into the equity markets and doing a follow-on offering or a large equity deal, which would be disruptive, right? No investor is happy when their stock is moving nicely. And the next morning, they wake up and they've lost significant value in their shares. No one likes that. So we will continue to use our ATM. We are always looking for efficient funding sources. The unsecured baby bonds have been wonderful for us and have allowed us to grow. Those rates are getting a little pricey. And we're evaluating a deal at the moment. And we'll let you know what we do with a press release as soon as we make a decision. But capital is tricky right now. Tyler, I wish I had $100 million, but I don't. So we will continue to build slow and steady and look not -- and look to not blow our cost of capital out of the water here.

Okay. Very helpful. And last question for me. If you, on the dividend here, nice to see that increase, talk a little bit more about the rationale for why now is the right time to make that move? And how comfortable you are with the current dividend payment level?

So what really prompted this is if you think back a little bit, we closed December, we had a lot of cash. We had done a couple of unsecured note offerings and we had a lot of cash drag at the end of the year and through the first quarter. During the second quarter, we've put a significant portion of that cash to work. And the loan business is pretty easy. The more money you put to work, most of that's going to head down to the bottom line because your personnel and your cost to operate is just a function of the spread between our interest rates, our cost of capital and what we lend at. And we are comfortable with 14. It may move a bit. It may move 13, it may move 14, it may move 12 -- but in the end, we have to pay out at least 90% of what we earn. And we're very happy providing this dividend to our shareholders, especially at a time when there are concerns, right? Mortgage REITs have been beaten up in the market. Many, many are trading below book value, and this is really a statement that says, hey, we're okay here.

Your next question is coming from Edward Reily of EF Hutton.

You mentioned baby bonds are getting pricey. I was wondering if you could give us some more color on the rates you're seeing?

So yes, December and March, we were doing 6% baby bonds. We think the market right now is 8%. Still less than -- still less than our dividend payments, but they're getting closer.

And would that 8% -- would that maybe cause some upward pressure in the [ 12:2 ] interest origination that you guys are charging customers? In terms of rising it. A little bit?

Yes. We are -- we have passed the message to our underwriting personnel that I don't want to say unbelievably aggressive pricing but it's really a deal-by-deal analysis. We're kind of leaning on 12 and 2 as our base and pricing from there. So I expect to see a little -- I do expect to see an increase coming down the road. But for right now, we are very busy at 12 and 2.

Okay. Got you. And I was wondering if you could maybe give us a geographical breakdown of the lending operations. I'm curious about the expansion into Texas and Florida, specifically.

Yes. So a significant part of our business is Connecticut, New York, New Jersey. We have different levels. Florida is big for us. We have a few special projects down there, high-value projects, great locations. The Texas market, we are starting to back away from and that was determined here just last week, the deals coming in are flaming hot. And we made a company decision to kind of back out of there. We don't have a whole lot of exposure in Texas, particularly Austin. And we've made a decision to move into South Carolina and North Carolina just a little bit more.

And the new underwriting platform, I was wondering how much hiring you guys are expecting to do for the rest of the year?

Good question. So where we are now. So I'm sure you all know, we just hired a CFO, a welcome addition to our team. He just started this week. He will be on our next call. We have hired another accounting staff person. We have hired another underwriting person, kind of a dual role. So we're still looking to hire quality people. I think we're all set now through the end of the year. And we're kind of busting out of our space here, Ed, to be quite frank. And there's really nowhere else to put anybody. So our new location should be done in the next couple of months. It will be highly efficient, a better work area and able to really handle our operations. We're now in 2 buildings on the same property. It's not as conducive as we would like.

Okay. Got you. Last one for me. Wondering if you had any idea as to which future quarters might result in the reversal of the unrealized losses that were on the books this quarter and last quarter? In marketable securities?

So all I could say as of today, our portfolio and just in the last few weeks, our portfolio has rallied back. So we have $600,000 of those dollars back. So our portfolio is performing better. We're going to hold on for a little bit longer and see what happens here. But again, they're safe securities. They basically were hit with the interest rate raises by the Fed. And in time, we will get par.

There appears to be no further questions in queue. I hand back over to John for any closing comments.

I'd like to thank everyone for joining our call today and the participants as well. We look forward to updating you again next quarter. Thank you.

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.