Manhattan Bridge Capital, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company originates and services short-term, first-mortgage loans to real estate investors, principally in the New York metropolitan area and Florida. Figures below are unaudited unless otherwise stated.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.399 million | $2.117 million | $4.797 million | $4.232 million |
| Operating income | $1.402 million | $1.352 million | $2.657 million | $2.773 million |
| Net income | $1.422 million | $1.356 million | $2.681 million | $2.781 million |
| Basic and diluted EPS | $0.12 | $0.12 | $0.23 | $0.24 |
| Net margin | 59.3% | 64.1% | 55.9% | 65.7% |
- Q2 revenue rose 13.3%, mainly because interest rates charged on loans were higher; interest income increased while origination-fee income declined.
- Six-month revenue rose 13.4%, but net income fell 3.6%. Higher financing costs and a special officer bonus related to the credit-line extension partly offset higher interest income.
- Interest and deferred-financing-cost expense increased 58.2% in Q2 and 75.4% for the six-month period, primarily due to higher SOFR-linked borrowing costs.
- At June 30, loans receivable were $69.81 million, down from $74.48 million at year-end 2022. Cash was $248,874, versus $103,540 at year-end.
- Reported liabilities totaled $28.93 million, including $20.67 million drawn on the credit line and $5.79 million in senior secured notes, net of financing costs. Notes have $6.0 million principal outstanding.
- Six-month operating cash flow was $2.72 million, compared with $2.85 million in 2022. Investing activities provided $4.68 million, as loan collections exceeded new loan issuances. Financing activities used $7.26 million, including credit-line repayments and dividends. Cash increased by $145,334 over the period.
Material changes, outlook and risks
- The $32.5 million secured credit line now matures February 28, 2026. Its rate was approximately 8.7% at June 30, 2023, including the agency fee, and fluctuates daily. The company reported compliance with its covenants at quarter-end.
- The company repurchased 33,360 shares for $164,806 under a program authorizing up to 100,000 shares through April 10, 2024.
- Management expects cash, operating cash flows and available credit to fund operations for the next 12 months, while warning that working-capital needs may increase as it pursues growth. No numerical earnings or revenue guidance was provided.
- The company had $8.39 million of construction-loan commitments available for borrower drawdown subject to conditions. It reported all loans as performing and no loan impairment provision at June 30, despite a number of loans having original maturities in prior years; borrowers generally pay interest and loans may be extended.
- A June foreclosure lawsuit concerns a performing loan and valid mortgage after a property deed transfer and a buyer-side data breach disrupted payoff funds. The company expects recovery through title insurance or foreclosure. It also disclosed a February sale of a $485,000 loan at face value; CEO Assaf Ran participated with $152,000.
- Key risks include borrower and collateral credit risk, loan concentration, reliance on the CEO, competition for loan originations, and higher interest rates. The company also disclosed credit-line restrictions on dividends and share repurchases, a cross-default provision, and a 120% loan-and-cash collateral requirement for the notes.
- The company is taxed as a REIT and generally must distribute at least 90% of REIT taxable income annually. A $0.1125-per-share dividend, totaling $1.29 million, was paid July 17, 2023.
Important facts for investors to verify
- How the company’s loan extensions and past-due original maturities affect repayment prospects, and whether the foreclosure-related payoff is recovered.
- Loan portfolio performance, collateral values, borrower concentration, and the status of the $8.39 million in conditional construction commitments.
- Credit-line availability, covenant headroom, and sensitivity of financing expense to SOFR; also verify compliance with the senior-note collateral test.
- Whether loan yields and fee income can continue to outpace borrowing and operating-cost increases while supporting dividends and portfolio growth.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter.