Good day, and welcome to the Satchim Capital Corp. Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would like to turn the conference over to Stephen Sweat Investor Relations. Please go ahead.

Good morning, and thank you for joining Sachem Capital Corp's second quarter 2025 earnings conference call. On the call from Sachem Capital today is Chief Executive Officer John Villano, CPA, and Interim Chief Financial Officer Jeff Wallraven. This morning, the company announced its operating and financial results for the quarter end of June 30, 2025. The press release is posted on the company's website, www.sajamcapitalcorp.com. In addition, the company filed its Form 10-Q today, which can be accessed on the company's website, as well as the SEC's website at www.sec.gov. 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. These include the risks detailed in our annual Form 10-K and this Form 10-Q, such as those related to non-performing loans, credit losses, and market conditions. 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, and thanks to everyone for joining us today. We will begin by reviewing our operating and financial results for the second quarter and provide an update on our strategic progress. During the quarter, we continued working towards growing our lending platform and taking decisive steps to strengthen our financial position. The efforts we made in late 2024 and early this year to protect our balance sheet from non-accretive financing positioned us well for continued stabilization in the second quarter. Building on the momentum from the first quarter, we remained focused on sourcing accretive capital to support our growth. We are pleased with the closing of our new $100 million senior secured notes due June 2030. This new financing provides significant financial flexibility for Sachem, allowing us to repay existing obligations and accelerate the origination of new accretive loans resulting in asset growth for the first time in five quarters. moving forward we will continue to evaluate additional capital sources to further strengthen our liquidity position and grow our earning asset base during the first half of the year our portfolio continued to perform in line with expectations while we still have approximately 119.6 million gross unpaid principal balance of non-performing loans in loans held for investment or $107 million net, compared to $107.6 million gross and $94.3 million net as of March 31, 2025. We continue to make meaningful progress working through these legacy assets, which we believe is critical to unlocking value and supporting future dividend growth. As of June 30, 2025, our book value was $2.54 per share, representing just a 1.2% decrease from March 31, 2025. Additionally, I'd like to provide a brief update on our significant exposure to a single borrower in the South Florida region. Specifically, two cross-collateralized loans in Naples, totaling approximately $50.4 million as of June 30, 2025, representing 13.1% of our mortgage loan portfolio and 42.1% of our NPL balance, down from $55 million at year-end 2024, primarily due to proceeds from the sale of one of four completed condominium units earlier this year. There were no further unit sales in the second quarter, which aligns with the typically slow summer season for property transactions in the Naples area due to seasonal factors like heat and reduced buyer activity. As discussed in our prior calls, this legacy 2021 investment has faced ongoing challenges, including permitting delays, hurricane impacts from two separate weather events, contractor and borrower performance issues, legal disputes with the City of Naples, and further legal disputes with former capital partners that have led to bankruptcy proceedings to protect against junior. A judge ordered mediation event with the former capital partner lender holding a second mortgage position, which has been set aside multiple times by the bankruptcy Court but sustained through repetitive appeals is scheduled for this week. A positive outcome, we believe, would clear the path forward for resolution, enabling the sale of the remaining completed units, completion of an additional four-condo building on one site, and development or sale of the other site. We remain in non-accrual status on this loan, currently on an opportunity cost basis impacting monthly earnings by about $450,000, but we firmly believe the consolidated cross-collateralized value remains in excess of outstanding netbook UPB recorded on our balance sheet as of June 30th, and we are optimistic about recovering capital as these resolutions progress. Last quarter, we mentioned the current development projects that our partner, Urbane New Haven is helping us work through. To provide an update on this progress, our four urbane real estate developments, one office with a residential component, and three high-end single-family homes have made strong progress and are progressing on schedule. Our Westport office assets are 50% leased with gap rental income of approximately $1.3 million annually. A portion of the Westport office asset was partitioned and is now approved for 10 residential homes of which two are deemed affordable the westport residential component is approved and in the development planning stage our three high-end homes in coconut grove florida are in various stages of construction with sales planned for late 2025 and the first half of 2026 we will continue to provide updates as these projects moved towards completion. Additionally, at quarter end, we had invested an aggregate of $41.2 million in projects managed by Shem Creek Capital through six investment funds. As a reminder, Shem Creek Capital is a commercial real estate finance platform that provides debt capital solutions to multifamily properties and allows us to participate in multifamily finance with strong borrower sponsorship. During the six months ended June 30, 2025, these investments generated approximately $3 million in revenue, of which $1 million was for the current quarter ending June 30, representing an attractive, low-risk, double-digit yield. Turning to the macro environment, our industry continues to navigate a challenging landscape of both obstacles and opportunities. The Federal Reserve has maintained a steady stance with rates remaining elevated. In the single-family housing market, mortgage rates continue to dampen demand while existing home sales remain well below historical averages. Single-family construction loan rates are at the highest levels in years with interest rates more than 10%. Existing homeowners in many instances are tied to their current home as COVID-era interest rates make it unaffordable to move to larger or new homes. The demand for new construction is significant, but with higher construction costs, burdensome permitting regulations coupled with higher interest rate charges make a new home purchase unattainable for many. Fix and flip residential faces similar challenges as property value has increased, reducing developer margins. While these challenges create headwinds for the broader market, they also present meaningful opportunities for selective and experienced lenders like Sachem who can provide capital solutions where traditional financing remains constrained. As noted in our 10Q, this environment has contributed to our revenue decline due to lower net originations and elevated NPLs and REO, but we are positioned to capitalize on it. Due to the ongoing constraints for many traditional lenders like banks, our pipeline of new origination opportunities continues to exceed our current capacity. We remain committed to our disciplined approach in evaluating new loans and maintaining our focus on single-family and multifamily residential assets in markets with strong underlying fundamentals. Our underwriting standards continue to emphasize highly experienced and credit-worthy sponsors. Our post-COVID era loan originations continue to perform exceptionally well. As we move into the second half of 2025, we remain confident in our strategic direction and our ability to capitalize on the opportunities ahead. With the addition of our new $100 million financing facility, we have strengthened our balance sheet and enhanced our capacity to support growth initiatives. We will continue to focus on working through our legacy NPL assets and pursuing accretive growth opportunities that align with our risk management principles. We are very excited about the opportunity ahead, and I will now turn

the call over to Jeff. I'll walk through Sachem Capital's financial highlights for the second quarter ended June 30, 2020. Let's get started with revenues. Total revenue was $10.8 million compared to $15.1 million in the second quarter of 2024. The change in revenue was primarily due to the cumulative effect on interest income from loans from materially lower net new loan origination over the last 12 months resulted in a year-over-year reduction in the unpaid principal balance of loans held for investment of $121.2 million, in addition to a currently elevated amount of non-performing loans, loans held for sale, and real estate owned. As a result, interest income from loans was $7.5 million down from $11.8 million, partially offset by fee income of $1.8 million and LLC income of $1 million. On the other hand, other income increased significantly, increasing by a half a million dollars. This was driven by the recognition of rental income from one project in 2025, which contributed the half a million dollars during this quarter. No such rental income was recorded in the prior quarter or year. Turning to operating expenses. total operating costs and expenses for the second quarter of 2025 were $9.7 million compared to $18.3 million in the same quarter last year. The primary contributor to this decrease was the reduction in the provision for credit losses related to loans held for investment, which declined by $7.6 million, or 89.1%. This change was driven by a decrease in direct allowances related to foreclosures and non-performing loans. Additionally, the change was due to reductions in interest and amortization expense of $0.8 million, compensation and employee benefits, provision for credit losses related to loans held for sale, and other expenses totaling $1 million. Overall, this reflects our progress in managing risks and reducing financing costs through debt repayments. So net results. This resulted in a gap net income of $1.9 million, and after payment of the Series A preferred stock dividends of $1.1 million, net income attributable to common shareholders was $0.8 million, or $0.02 per share, compared to net loss attributable to common shareholders of $4.1 million, or $0.09 per share, for the second quarter of 2024. Looking at our balance sheet position, total assets increased to $501.8 million from $492 million at December 31, 2024. Specific to our loan portfolio as of June 30, we held 135 first mortgage loans on residential and commercial real estate primarily for investment, with a non-paid principal balance of $382.1 million, that of $2.6 million in deferred loan fees. After an allowance for credit losses of $17.6 million, the net carrying value was $364.5 million, up from $356.6 million at year-end 2024, but down $121.2 million from $485.7 million a year ago due to lower net originations, elevated non-performing assets, and cumulative aggregate corporate debt reductions due to maturities. We also had $8.8 million in loans held for sale, net a half a million valuation allowance. This quarter, I wanted to add to this balance sheet discussion further financial context on our investments in Shem Creek funds. While our investment is carried at cost on our balance sheet in accordance with U.S. GAAP, our 41.2 million members' equity invested supports over $600 million in gross loans held for investments by those funds. On a pro rata, pro forma basis, our approximate 39% of the total fund's members' equity participation represents approximately $234 million of deployed levered capital. Total liabilities increased to $323.9 million, primarily due to the initial draw at closing of the private placement of five-year senior secured notes due June 11, 2030. Our aggregate outstanding debt at June 30, 2025 was $315.5 million. Resulting total asset to total liability coverage is 1.55 times. Shareholders' equity stands at $177.9 million, resulting in a debt to equity ratio of 1.8 times or 64.6% debt and 35.4% equity. Looking at book value, as John mentioned earlier, our book value was stable this quarter and as expected. Book value per common share at June 30, 2025 was $2.54, compared to $2.64 at year-end 24, and $2.57 at March 31, 2025. The year-to-date decrease of $0.10 is solely driven by the $4.2 million net aggregate preferred and common dividends paid in excess of $2.8 million in book net earnings. As the market continues to evolve and impact the entire industry, we do remain confident that the major issues are behind us as we look to return to growth. On liquidity and capital resources, cash and cash equivalents increased to $22.5 million from $18.1 million at the start of the year. For the first half of 2025, we have dispersed $81 million in principal for draws on existing loans and new loans while collecting $71.4 million in repayments, leading to a net outflow of about $9.6 million in loan-related investing activities. This reflects our disciplined approach to originations in the challenging environment with collections helping maintain liquidity. Additionally, during the second quarter, we completed $100 million private placement of five-year senior secured notes that mature on June 11th of 2030, and we drew an initial $50 million at closing and can tap the remaining $50 million at any time before May 15th, 2026. We continue to maintain solid liquidity with a focus on prudent management of debt maturities and funding requirements. requirements. Regarding our $56.3 million notes maturing this quarter at the end of September, we expect to be able to fully repay the notes from drawdowns on our existing credit facilities, primarily the recent senior secured notes facility, and retained cash from principal repayments on our mortgage loan that would fully provide proceeds to repay and replace the maturing bond principal without requiring additional balance sheet and loan portfolio compression. As detailed in our 10-Q, our liquidity is supported by principal interest payments on loans, sales of real property, and our credit facilities. On dividends, 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. We continue to monitor this closely amid our focus on MPL resolution and growth. As a reminder, going forward, the company has aligned in its intended timing of its common dividend and Series A preferred dividend declaration and payment thereof to occur in the months of March, June, September, and December. I will now turn the call back to John for closing comments.

Thanks, Jeff. We believe Sachem is positioned to be a leader in small-balanced real estate finance. We look forward to resolving our remaining NPLs to unlock capital for growth and accessing new sources of accretive capital to refill our loan pipeline. While our recovery is well underway, more time is needed to be fully back on track. We will continue to manage our business, grow book value, and our dividend with the goal of producing value for our shareholders. Thank you, and we'll now open the call to questions from our analysts.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our router. roster. Again, if you have a question, please press star, then one. The first question is from the line of Chris Muller with Citizens Capital Markets. Please go ahead. Hey, John, Jeff. Thanks

for taking the questions. And congrats on getting the notes offering done. It's nice to have that behind you guys. So I want to talk about some of the LLC investments. It looks like there was a dip in income there quarter over quarter. So I guess the question is, what caused that dip? And And what's the outlook for Urbane and Shem Creek in the back half of the year?

Okay. Good morning, Chris. So Urbane, as we've talked about in our just recent script read, we've got projects going on, one in Connecticut, three in Florida, that are in various stages of progress. Our building in Westport, Connecticut, which is a significant office building, It is 50% leased. We've talked about a $1.3 million gap rental income for the year, which does provide a rate of return to Sachem. And then further, the efforts of Urbane Capital have split off a section of the property to really build a residential community as part of the parcel. That has significant upside to us. It is, we're moving through the planning stages, so we do have approvals. We are now planning the development of the parcel. We expect that to occur in the next six to nine months. Unfortunately, these things take time. There is also some preliminary discussions of further leasing of the main office building from our significant tenant. Those discussions are ongoing. With respect to the properties in Florida, we have recently inspected those properties, and they are moving along famously. We expect a, you know, I don't want to say a cash-out event, but we expect a sales perhaps in the fourth quarter of 2025 with further sales in the first half of 26 for the remaining two units. The buildings are of excellent quality. They are in Coconut Grove, Florida. They fit in with the revitalization and rebuild of the community, and we have a local, well-established builder handling the process. respect to Shem Creek. With our Shem Creek investments, and you do know that we have a 20% ownership interest in the manager, our cash flows are subject to certain waterfalls with respect to the loans that we participate in. And in many cases, we don't know exactly how those are going to flow to us. But overall, we do maintain a double-digit yield on our investments with SHEM. They are excellent in terms of underwriting multifamily and workforce loan opportunities. And it's something that we can't handle here at SageM because our cost of capital is just a bit too high to be effective in that lending space. So it's a way for us to get portfolio diversification with... Got it. That's very helpful. And sorry, go ahead.

Chris, the one piece I would add on to John's commentary, just give you a couple of numbers behind it. You know, the one, we've been getting return of capital on the Shem Creek, right? There's been continuing turnover in the assets. So there's, when you look from year end through June 30, you know, we've had about a $7 million return of capital relative to just specifically invested in the funds in Shem Creek setting aside the manager. and as John mentioned relative to the waterfalls there was some timing difference that occurred between second third first quarter and second quarter so I on the one aspect I would not caution just annualizing the three months ended June 30 because there was a little bit of a twist I would continue to focus in on you know the total Shem Creek investments relative to the funds, which is approximately $41.2 million. And our, you know, still current earnings on that is in that low double, you know, low double digit, you know, 10 to 12 percent return on that invested

funds. Yeah, that's very helpful. And then I guess on Urbane more specifically, what is the pipeline look for new projects there? Are they kind of at capacity with the existing book?

Chris, you're going to get me in a lot of trouble here. We are looking to build the Urbane pipeline. You may have heard me speak about this in prior calls, not so recently, but in prior calls, where we want to have Urbane projects rolling off our books every quarter. And that's going to require us to invest further dollars with them going forward. And, you know, we've had a bump in the road over the past year or so. 24 was difficult for us. So we've slowed down the pursuit of opportunities with Urbain. However, it is a topic of discussion every day. And we're looking to get back on that horse and begin building our portfolio with them again.

Very helpful. And just one other one, if I could throw it out there. It looks like the REO is pretty stable in the quarter. Can you just give us some insight into that bucket? Were there sales and new additions, or was REO activity pretty muted in the quarter?

We are making significant progress working through the NPLs and the REO. Unfortunately, the process takes a whole lot of time and a whole lot of effort. Jeff, if you would like to share some of the improvements we've made during the quarter and expected improvements in the third quarter, that would be a good time to talk about that.

And, Chris, relative to REO specifically, there is a footnote on page 33, actually in the MD&A section, that actually gives you an asset-by-asset breakdown of REO, and it indicates when it was added into the portfolio. So year to date, you know, there's been movement while the REO 18 million, 18 and a half million rounded, you know, in change looks flat. You know, we've added 2.3 million we've taken away. There's also another footnote. I was trying to find it exactly where we reconcile the movement in REO that is in the footnotes And I can find that one specifically for you here in a minute. Now, we'll take the quick opportunity relative to just, you know, when you kind of look at NPLs and loans held for investment, the loans held for sale and REO on an aggregate basis. like since June 30, you know, the resolutions we've been talking about are focused on the resolutions, and the resolutions are continuing to accelerate, even though I'll call it net, we believe we're at the peak as of June 30. But post-June 30, we've had resolutions in that category of approximately 5 million. And before we get through the end of just third quarter, We're expecting an additional resolution, I'll call it, in the category of NPLs, Loans Held for Sale, and REO of another $12.5 million. We really do expect the velocity of resolutions to pick up in the second half of the year with all the work and focus we've had on it.

Got it. That's all very helpful. Thanks for taking the questions.

Thanks, Chris.

Next question is from the line of Christopher Nolan with Ladenburg-Talman. Please go ahead.

Hey, guys. Hey, the Naples loan, what's the amount, please?

The principal balance? Yes, please. I think it's $44 million.

If I understand your comments earlier, John, that you think you potentially could see a court-driven resolution this week?

We have a mediation event scheduled for tomorrow, and we have ongoing discussions with our borrower. And as we talked about in our script reading, we have a second mortgage holder that is being difficult, and they are in a terrible position, and they're fighting for their life. And this thing should be coming to an end relatively quickly. But again, you know, when your hands are in the judge's hands, it takes time. So we are optimistic, and we are working it towards the exit. It's just taking longer than we would like. And, you know, as we discussed, you know, it does cost, it's hitting earnings, right? It hits earnings about $450,000 a month. It's painful.

Okay. So there is the pathway for some sort of resolution where, you know, there's a restructuring, which could be a third quarter realized gain or loss, I mean, and something along those lines, but something is likely to happen on this.

You know, we are hoping for the best. We are working, like I said, we're working our way towards the door. It's finding a middle ground with all parties where we can proceed and unlock our capital.

And then if I'm correct, that this counts for roughly one-third of your non-accruals in the quarter. Is that correct?

That's correct. Okay. You've got to take it. There were two loans within the Naples to the same borrower. And so, as you'll see disclosed, there's a $50.4 million net book value on there. And that $50.4 is $50.4 of $119 million. So, yes, a little more than – okay.

Okay. And then a broader thing, I noticed that your reserve, your allowance reserves at the percentage of your mortgages has gone down. It looks like your non-accrual volumes have gone down. I mean, it looks like you guys have sort of, I wouldn't say, you stabilized in terms of the asset quality trends, putting aside Naples for a second, just in the second quarter results. Is that a fair read of it?

um that is fair um you know there is a cleansing of the portfolio that's been ongoing uh you know we've talked about this prior um we're not big fans of extend and pretend you know any loan that's coming up for renewal um you've got to meet our updated underwriting guidelines if not you know it ends up in in a non-pl situation so we're doing our very best to cleanse the portfolio Like I've said, it's quite painful, but it's what we want to show our shareholders that we're managing the portfolio the best we can. We're trying to manage the assets and the money we have invested, and we're trying to push some of these weaker loans to the door as quickly as we can.

Okay, the final question, the leverage ratios are quite high. Should we start seeing more loan sales and just trying to process, originate loans and then sell them? Is that going to be more of an activity?

We have no loan sales plan. I mean, we do have some loans. We have loans for sale on our balance sheet, loans held for sale. But we are not planning a significant sale like you saw in the fourth quarter of 2024.

Thank you. I'll talk to you guys later.

Thanks, Chris.

Again, if you have a question, please press star, then one.

The final question is from the line of Gurav Mehta with Alliance Global Partners. Please go ahead.

Thank you. Good morning. I wanted to get some more clarity on the second crunch of the $100 million note offering. So the withdrawal of that grant between now and, I guess, May of 26th, that depends on new loan origination opportunities that you guys see during this time?

Gaurabh, that is correct, and I want to add this as well. As you know, we have notes coming due in September 30 of this quarter, of the third quarter. Funds are available for that through our Churchill facility, cash on hand. as well as our Needham Credit Facility. So, you know, the undrawn $50 million is available for our notes or it could be for growth, but we're going to see how the quarter progresses, you know, taking into account loan payoffs and things like that.

Okay. And I guess during this quarter, I don't know if I missed you in your comments, did you provide a number on new loan origination and loan payoffs?

Yes, we did. We have a, you know, that is in the opening section of the MD&A. For the quarter, I was just trying to get to my specific numbers. For the quarter, we originated, you know, or put out new loan disbursements relative to either draws on existing loans or brand new loans of $39.7 million. And loans repaid was $23.7 million.

And then lastly, maybe on the yields, on the new loans that you guys are seeing, is it still 12 and 2, or are you guys seeing a different number in the market?

Gaurav, we're doing our best to stay with 12 and 2. We're not able to compete in multifamily finance with those rates, but we're doing our best to stay with 12 and 2. And on a rare occasion, we'll go down to 11. And we're not getting into below 10 in any case.

Okay, thank you. That's all I have.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you.

Thanks, everyone, for joining us today.

We look forward to informing you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.