Manhattan Bridge Capital, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet figures are compared with December 31, 2015. The company originates, services and manages short-term, secured real-estate loans, primarily in the New York metropolitan area, and has elected REIT tax treatment.
Financial performance and condition
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $1.105 million | $912,000; up 21.2% |
| Net income | $695,324 | $475,596; up 46.2% before tax |
| Basic and diluted EPS | $0.10 | $0.08 |
| Operating costs and expenses | $408,758 | $436,165 |
| Operating income as a share of revenue | 63.0% | 52.2% |
| Net cash from operating activities | $711,036 | $277,377 |
| Net cash from investing activities | $1.894 million | $271,520 |
| Net cash used in financing activities | $2.651 million | $340,291 |
Revenue comprised $914,309 of loan interest and $190,281 of origination fees. Interest and amortization of debt service costs were $179,550. The filing attributes higher income primarily to revenue growth and lower operating expenses; lower interest costs were partly offset by higher financing-cost amortization.
At March 31, total assets were $30.330 million, total liabilities $11.888 million, and stockholders’ equity $18.442 million. Cash and cash equivalents were $61,279, with an additional $464,889 of restricted cash dedicated to reducing the credit line. Working capital was approximately $8.469 million. The $14 million Webster credit line had $10.650 million outstanding at a stated March 31 rate of 5.1829%; short-term loans payable totaled $860,620. All reported liabilities were classified as current.
The loan portfolio totaled $29.009 million: $19.418 million short-term and $9.591 million long-term. No loan represented more than 10% of the portfolio. Management reported no impairments or loan-loss provisions and stated that borrowers on extended loans were paying interest. The company had $1.720 million of additional construction-loan commitments subject to conditions.
Changes and notable events
- Loan balances declined from year-end: short-term receivables fell from $20.199 million to $19.418 million and long-term receivables from $10.705 million to $9.591 million. The filing reports $5.914 million of new short-term lending and $7.809 million of loan collections during the quarter.
- The Webster line balance decreased from $11.821 million to $10.650 million. Financing cash flows also included $617,443 of dividend payments and $163,112 of deferred financing costs.
- After quarter-end, $1.343 million of loans outstanding at March 31 were paid off, and the company repaid all $860,620 of short-term loans payable.
- On April 25, 2016, wholly owned MBC Funding II completed an offering of 6% senior notes due April 22, 2026. Gross proceeds were approximately $6.0 million and net proceeds approximately $5.3 million. The subsidiary used proceeds to buy a pool of the company’s mortgage loans; the company used the proceeds to reduce the Webster line. The parent guaranteed the notes and pledged its subsidiary shares.
Outlook, risks and contingencies
Management expects cash balances, the Webster credit line and operating cash flows to fund operations for the next 12 months, while anticipating higher working-capital needs as the business grows. The filing provides no numerical earnings or revenue guidance. REIT status generally requires annual distributions of at least 90% of taxable income.
Loans are generally fixed-rate, first-mortgage loans with typical initial terms of up to 12 months; reported rates are 12%–15%, and origination fees generally 1%–3%. Some loans classified as long-term were originally due as far back as 2009. Although the company reported no historical defaults or foreclosures, it cautioned that future loans may default or become uncollectible. Other disclosed risks include limited REIT operating experience, reliance on the CEO, borrower and collateral valuation risks, loan-portfolio illiquidity, competition, credit availability, and Webster covenants that can restrict borrowing, dividends and other actions. The CEO personally guarantees the Webster obligations. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- How the subsequent $6.0 million note offering and mortgage-pool sale affect Webster borrowings, interest expense, collateral and covenant headroom.
- Repayment status and recoverability of extended loans, including loans originally due in prior years, and the collateral valuations supporting management’s no-impairment conclusion.
- Ability to meet the $1.720 million conditional construction-loan commitments while maintaining liquidity and growing the portfolio.
- Dividend capacity under REIT distribution requirements and the credit-line restrictions.
- Exposure to interest-rate changes, borrower concentration and the company’s reliance on its CEO; the filing does not provide a clear quantified sensitivity analysis.