Manhattan Bridge Capital, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Manhattan Bridge Capital originates and manages short-term, first-mortgage loans to real estate investors, principally in the New York metropolitan area and Florida. Its unaudited results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $2.117 million | $1.713 million | $4.232 million | $3.443 million |
| Operating income | $1.352 million | $1.054 million | $2.773 million | $2.156 million |
| Net income | $1.356 million | $1.058 million | $2.781 million | $2.164 million |
| Basic and diluted EPS | $0.12 | $0.11 | $0.24 | $0.22 |
- Q2 revenue rose 23.6% and net income rose 28.2% year over year; first-half revenue rose 22.9% and net income rose 28.5%.
- Calculated net margin was approximately 64.1% in Q2 2022 versus 61.7% in Q2 2021, and 65.7% for first-half 2022 versus 62.9% for first-half 2021.
- First-half loan interest income was $3.256 million and origination-fee revenue was $976,000. Higher loan volume drove revenue growth; higher financing costs and G&A partly offset it.
- At June 30, loans receivable were $69.304 million, up from $65.715 million at year-end 2021. Total assets were $70.923 million and stockholders’ equity was $43.300 million.
- Cash was $118,000, down from $143,000 at year-end. First-half operating cash flow was $2.847 million; investing cash outflow was $3.590 million and financing cash inflow was $718,000. Loan originations of $37.953 million exceeded collections of $34.365 million.
Debt, liquidity, and portfolio
- At June 30, line-of-credit borrowings were $19.274 million against a $32.5 million facility expiring February 28, 2023. The stated rate was approximately 5.79%, including the agency fee, and fluctuates with the selected rate benchmark.
- Senior secured notes had $6.0 million principal outstanding, bear 6% interest, and mature April 22, 2026. The notes require qualifying mortgage loans plus cash to equal at least 120% of their principal.
- Management said cash, credit availability, and operating cash flows should fund operations for the next 12 months, while noting working-capital needs are expected to increase as the company pursues growth.
- The loan portfolio was reported as performing, with no loan impairments or impairment provisions. However, loans included balances originally due in years 2016–2021 and the first half of 2022; borrowers were paying interest and extensions were signed or in process. The company had $9.619 million of construction-loan commitments available for draw when conditions are met.
Material changes, outlook, and risks
- Management attributed growth to increased lending activity. Interest and deferred-financing-cost expense increased 18.6% in Q2 and 11.7% in the first half, primarily due to higher LIBOR-related borrowing costs. The company said it was working to increase loan rates to offset higher funding costs.
- An April 2022 credit-agreement amendment raised the individual-loan limit from $1 million to $2 million, increased permitted mortgagor concentration from $2.5 million to $5 million, and authorized up to $4.875 million of lending in specified southern Florida counties.
- A March 2022 waiver addressed the fixed-charge-coverage covenant for year-end 2021 and excluded $700,000 of specified prior-quarter distributions from coverage calculations for the first three quarters of 2022. The company reported compliance with other credit-line covenants at June 30, 2022.
- Competition and rising interest rates could pressure originations, pricing, or margins. The company also cited borrower concentration, collateral valuation, due diligence, dependence on its CEO, and COVID-19 impacts as risks. It reported no material COVID-19 impact to date.
- A June cybersecurity incident affected an unused server and an executive’s personal computer. The company reported no financial loss or operational effect but said client records may have been obtained; it was investigating and considering additional security measures.
- The company is a REIT and generally must distribute at least 90% of taxable income to maintain REIT status. A $0.125-per-share dividend, totaling $1.437 million, was paid July 15, 2022.
- Management reported effective disclosure controls as of June 30, 2022 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the older, extended loans remain adequately collateralized and are repaid or renewed as expected; review loan maturities, concentrations, and subsequent collections.
- Available borrowing capacity, covenant headroom, and refinancing or renewal plans for the credit line due February 2023, including the effect of changing benchmark rates.
- Whether loan yields and origination activity can keep pace with rising funding costs and competition, and whether growth increases credit or concentration risk.
- The scope and resolution of the cybersecurity incident, including whether client records were accessed and whether any notification, remediation, or regulatory obligations arise.
- The company’s ability to fund committed construction loans, sustain dividends, and meet REIT distribution requirements while maintaining liquidity.