Manhattan Bridge Capital, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; financial statements are unaudited. The company originates and manages short-term, secured real-estate loans, principally first mortgages to investors in the New York metropolitan area. It has elected REIT tax treatment.
Financial performance
| Metric | Q1 2018 | Q1 2017 / prior date | Change |
|---|---|---|---|
| Total revenue | $1.664 million | $1.330 million | Up 25.1% |
| Interest income from loans | $1.429 million | $1.106 million | Up |
| Origination fees | $235,226 | $223,425 | Up |
| Interest and financing-cost expense | $397,705 | $231,582 | Up 71.6% |
| General and administrative expense | $285,519 | $305,514 | Down 6.5% |
| Net income | $980,918 | $791,149 | Up 24.0% |
| Net income per share, basic and diluted | $0.12 | $0.10 | Up |
| Net margin | Approximately 58.9% | Approximately 59.5% | Down slightly |
Management attributed higher revenue to increased lending activity. The rise in financing expense mainly reflected increased use of the Webster credit facility to fund loan growth. Lower G&A primarily reflected a 2017 officer bonus, partly offset by higher appraisal, travel, meal and Nasdaq-related expenses.
Financial position, cash flow and liquidity
- Loans receivable: $46.057 million at March 31, up from $45.124 million at year-end 2017. Cash was $185,532, versus $136,441.
- Debt: $17.764 million outstanding under the $20 million revolving credit agreement. Senior secured notes were reported net of financing costs at $5.396 million; their principal amount is $6 million and they bear 6% interest, with maturity in April 2026.
- Equity and liabilities: Total assets were $46.856 million, total liabilities $23.625 million and stockholders’ equity $23.231 million. Retained earnings were $593,252, compared with an accumulated deficit of $387,666 at year-end.
- Cash flow: Operating activities provided $1.024 million, versus $755,000 in Q1 2017. Investing activities used $932,500, as $11.0 million of loan originations exceeded $10.068 million of collections. Financing activities used $42,424, including an $891,983 dividend payment offset by $849,559 in net credit-line proceeds. Cash increased by $49,091.
- Credit availability and commitments: The credit facility had approximately $2.236 million of nominal capacity remaining at quarter-end, subject to borrowing terms and collateral requirements. The company had $4.606 million of construction-loan commitments available for borrower draws when conditions are met.
Material developments, outlook and risks
- Interest rates on company loans generally range from 11% to 14%; typical initial terms are up to 12 months. The credit-line rate fluctuates; it was 6.13688% on March 31, including the agency fee. The company reported compliance with credit-agreement covenants.
- Management expects cash, operating cash flows and the credit agreement to fund operations for the next 12 months, while also expecting working-capital needs to increase as it pursues growth. Short-term executive loans may be used for flexibility; the CEO’s three bridge loans totaling $950,000, bearing 6%, were repaid in full on February 9, 2018.
- The company reported no loan impairments or defaults and no individual borrower represented more than 10% of loans outstanding. However, $10.528 million of loans were originally due in 2015–2017 and had been extended; borrowers were paying interest at quarter-end. The company reevaluates collateral before extensions. It reported that $1.6 million of quarter-end loans were paid off after the balance-sheet date.
- Key risks include limited funding availability, competition, reliance on the CEO, inaccurate collateral valuations or underwriting, borrower concentration, lender-liability claims and potential losses on loans. The company has never foreclosed on a property, but cautions that past experience does not assure future collectability.
- As a REIT, the company generally must distribute at least 90% of REIT taxable income to maintain qualification; distributions below 100% may leave undistributed taxable income subject to corporate tax. The quarter’s dividend per share is not clearly stated in the filing text.
- Management concluded disclosure controls were effective as of March 31, 2018 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How the company will fund the $4.606 million of construction-loan commitments, given limited remaining nominal capacity on the revolving facility and expected growth in working-capital needs.
- Borrower repayment and collateral status for the extended loans originally due in 2015–2017, and the outcome of the reported subsequent $1.6 million payoff.
- Future funding costs, credit-line availability and compliance with collateral and other lending covenants as rates and loan balances change.
- Dividend sustainability relative to REIT taxable income, operating cash flow and the company’s growth and funding requirements.
- Ongoing credit quality, collateral valuations and borrower concentration; the filing’s history of no defaults does not eliminate future loss risk.