Manhattan Bridge Capital, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results include the Company and its wholly owned subsidiary. Manhattan Bridge originates and manages short-term, secured real-estate loans, principally in the New York metropolitan area and Florida.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.107 million | $1.627 million | $6.339 million | $5.070 million |
| Income from operations | $1.232 million | $1.105 million | $4.005 million | $3.261 million |
| Net income | $1.237 million | $1.110 million | $4.018 million | $3.274 million |
| Basic and diluted EPS | $0.11 | $0.10 | $0.35 | $0.32 |
Revenue increased 29.5% in Q3 and 25.0% for the nine-month period; net income rose 11.4% and 22.7%, respectively. Higher loan interest income and origination fees drove revenue growth. The company attributed higher interest expense chiefly to rising LIBOR and greater use of its credit line. Nine-month interest and financing-cost expense was $1.205 million, up 47.1%; general and administrative expense was $1.125 million, up 14.3%. The filing does not report a separately labeled profit margin.
Balance sheet, cash flow and financing
- At September 30, loans receivable were $72.702 million, up from $65.715 million at December 31, 2021. Total assets were $74.766 million and stockholders’ equity was $43.103 million.
- Cash was $109,708, with a further $433,269 of restricted cash, primarily pending loan collections dedicated to reducing the credit line. Combined cash and restricted cash was $542,977.
- Line-of-credit borrowings were $23.362 million, versus $15.646 million at year-end 2021. The facility has a $32.5 million aggregate limit and was priced at approximately 7.14% at quarter-end; it expires February 28, 2023. The company said it was working to extend the facility for three years. Senior secured notes had $6.0 million principal outstanding, bear 6% interest and mature April 22, 2026; their balance sheet carrying amount, net of financing costs, was $5.734 million.
- For the first nine months, operating cash flow was $4.019 million; investing cash flow was a use of $6.988 million, reflecting $49.242 million of loan issuances less $42.255 million of collections; financing cash flow was $3.369 million, including $7.716 million net credit-line proceeds and $4.311 million of dividends paid.
- The company declared a $0.125-per-share cash dividend, totaling $1.437 million, paid October 17, 2022. A matching dividend payable was included in quarter-end liabilities.
Portfolio, changes and management outlook
All $72.702 million of loans were classified as performing. Management reported no impairments or defaults and said no single borrower represented more than 10% of loans. Some loans had original due dates from 2016 through 2022; the company said borrowers were paying interest and extensions had been signed or were being finalized. Subsequent to quarter-end, $890,000 of loans were repaid. The company had $7.904 million of construction commitments available for draw when conditions are met.
Compared with 2021, the portfolio and lending activity expanded, but borrowing costs rose materially and loan demand and capital deployment slowed. Management said competition had intensified and it was raising loan rates to offset higher funding costs. A 2022 credit agreement amendment increased the individual-loan limit and borrower concentration limit and expanded eligible Florida lending territory, subject to a stated $4.875 million origination cap for the specified counties. A lender waiver addressed the fixed-charge coverage covenant for year-end 2021 and excluded certain prior-quarter distributions from specified 2022 covenant calculations. The company reported compliance with the credit-line covenants as of September 30, 2022, except as described in the filing.
Management expects existing cash, the credit agreement and operating cash flow to fund operations for the next 12 months, while anticipating higher working-capital needs as it pursues growth. No earnings or dividend guidance was provided. The company is a REIT and generally must distribute at least 90% of REIT taxable income to maintain its tax status.
Risks, contingencies and unusual items
- Rising rates increase the cost of the floating-rate credit line and may reduce earnings and shareholder distributions. Management said loan-rate increases and adjustable-rate provisions on most loans may help offset funding costs, but may not fully do so.
- Loan demand weakened amid rate increases; competition may constrain pricing and origination opportunities. Credit, collateral valuation, borrower concentration, and reliance on the CEO are identified risks.
- The credit facility’s February 2023 expiration, covenants, borrowing-base limits and cross-default provision create refinancing and liquidity considerations. The filing describes a prior covenant waiver; it does not provide a clear value for remaining facility availability after borrowing-base constraints.
- The company reported no material changes to previously disclosed risk factors other than the added discussion of rising interest rates. It also reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Investor facts to verify
- Whether the $32.5 million credit facility was extended before its February 28, 2023 expiration, and on what terms.
- Subsequent loan performance, extensions, repayments, collateral values and use of the $7.904 million construction commitment.
- Whether loan pricing and adjustable-rate features offset higher funding costs, and how further rate changes affect earnings and dividends.
- Compliance with credit-line covenants and the availability of borrowing capacity under collateral and concentration limits.
- The sustainability of dividends in light of cash generation, REIT distribution requirements and the declared dividend payable.