Manhattan Bridge Capital, Inc. — 2013 Q3 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013; unaudited consolidated results. The company makes short-term, real-estate-secured loans to investors in the New York metropolitan area. Unless stated otherwise, amounts are in U.S. dollars.
Financial performance and position
- Third-quarter revenue: $585,038, up 19.1% from $491,310 a year earlier. Loan interest was $479,118 and origination fees were $105,920.
- Third-quarter earnings: Operating income was $293,034 versus $219,713; net income was $193,921 versus $161,600. Diluted EPS was $0.05 versus $0.04.
- Nine-month revenue and earnings: Revenue was $1,673,195, up 28.9%; operating income was $798,330 versus $558,186; net income was $524,991 versus $356,647. Diluted EPS was $0.12 versus $0.08.
- Margins: Operating margin was approximately 50% for Q3 and 48% for the nine-month period, compared with approximately 45% and 43%, respectively, in 2012. Nine-month net margin increased to approximately 31% from 27%.
- Loan portfolio: Loans receivable totaled $15.4 million: $11.363 million current and $4.037 million long-term. The portfolio was $12.688 million at September 30, 2012. The company also had $1.547 million of conditional construction-loan commitments.
- Cash flow: Nine-month operating cash flow was $546,267, investing cash outflow was $1,775,634, and financing cash inflow was $1,057,719. Cash declined $171,648 to $69,045.
- Liquidity and debt: Working capital was approximately $4.564 million, down from $5.582 million at December 31, 2012. Current liabilities totaled $7.076 million, including a $4.8 million bank line of credit, $1.319 million in short-term loans, and $500,000 in senior secured notes. All reported liabilities were current.
Changes, outlook, and risks
- Revenue growth reflected increased lending activity. Interest and debt-service costs rose to $119,272 for Q3 and $323,478 for the first nine months, principally due to greater use of the credit line and short-term borrowing. General and administrative expense declined in Q3, partly because of lower legal fees following settlement of a derivative action.
- The Sterling National Bank credit line was increased from $3.5 million to $5 million in January 2013 and extended through July 1, 2014. Its September 30 balance was $4.8 million; the CEO provided a personal guarantee. The $500,000 senior notes, bearing 6.63% interest, were due in December 2013.
- Management expects current cash to fund operations for the next 12 months, while anticipating increased working-capital needs as lending grows. No quantitative earnings or revenue guidance was provided.
- Management reported no loan impairments and said it had not experienced defaults to date. However, several loans had been extended beyond their original maturities, including loans originally due from 2009 through 2012; borrowers were reportedly paying interest. The company noted that future defaults or losses remain possible.
- Credit concentration merits attention: loans to related borrower groups totaled $4.112 million, or 26.7% of the portfolio. No single borrower entity exceeded 10% of outstanding loans. Loans are generally secured by real estate and personal guarantees; stated rates were 12%–15%, with potentially higher effective rates after fees.
- A real-estate option expired September 30, 2013. The company had contracted to sell the property to a third party for $430,000, with closing scheduled for November. Because the option holder tendered a monthly fee that the company deposited, the holder may claim renewal and seek some or all sale proceeds above the $146,821 option price.
- The derivative lawsuit was settled and dismissed in April 2013; the $80,000 fee award was paid by the company’s insurance policy. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the senior secured notes were repaid or refinanced when due in December 2013, and the availability and covenants of the bank credit line.
- Collections, extensions, collateral values, and any subsequent impairment or default in the $15.4 million loan portfolio, particularly the related-borrower exposures.
- Whether the November 2013 property sale closed and whether the expired option holder asserted a claim.
- Whether cash generation and liquidity can support planned portfolio growth and the $1.547 million of conditional construction-loan commitments.