Manhattan Bridge Capital, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. The company originates and manages short-term, first-mortgage loans to real-estate investors, principally in the New York metropolitan area and Florida. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $1.713 million | $1.741 million | $3.443 million | $3.452 million |
| Operating income | $1.054 million | $1.095 million | $2.156 million | $2.108 million |
| Net income | $1.058 million | $1.097 million | $2.164 million | $2.113 million |
| Basic and diluted EPS | $0.11 | $0.11 | $0.22 | $0.22 |
| Operating margin (derived) | 61.5% | 62.9% | 62.6% | 61.1% |
| Net margin (derived) | 61.8% | 63.0% | 62.9% | 61.2% |
- Q2 loan interest income was $1.424 million, down from $1.490 million; origination fees rose to $290,000 from $251,000. For the first half, interest income was $2.867 million versus $2.964 million, while fees increased to $576,000 from $488,000.
- At June 30, loans receivable were $53.386 million, down from $58.098 million at year-end 2020. Interest receivable was $916,000. The company reported no loan impairments or impairment provisions; $5.386 million of construction commitments remained available for borrower draws subject to conditions.
- Cash was $153,000, with no restricted cash at quarter-end. First-half operating cash flow was $2.029 million; investing cash flow was positive $4.712 million, reflecting $20.280 million of loan collections against $15.568 million of originations; financing cash flow was negative $7.047 million. Cash and restricted cash decreased by $306,000 to $153,000.
- At June 30, the line of credit had $15.397 million outstanding under a $32.5 million facility expiring February 28, 2023; its rate was approximately 4.1%. Senior secured notes had $6.0 million principal outstanding, bear 6% interest, and mature in 2026. The balance sheet reports notes net of financing costs at $5.640 million. The company said it complied with credit-line covenants.
- Total assets were $54.954 million, total liabilities $21.878 million, and stockholders’ equity $33.077 million. Loans and mortgage collateral are central to the company’s funding and credit arrangements.
Material changes versus prior periods
- Q2 revenue declined 1.6% and net income declined 3.6% year over year, mainly due to lower interest income as competitive and market conditions led to lower loan rates. Q2 interest and financing-cost expense fell 2.8%, while general and administrative expense rose 6.6%.
- First-half revenue was nearly flat, down about $9,000. Net income increased 2.4%, primarily because interest expense declined 6.6%; general and administrative expense decreased 2.3%.
- The loan portfolio contracted from year-end, and first-half originations were lower than in 2020, while collections were higher. Line-of-credit borrowings were repaid by $4.912 million during the first half.
- After quarter-end, the company issued 1,875,000 common shares at $7.20 each on July 9, raising approximately $12.354 million net. Proceeds were used to reduce the Webster Credit Line. The company reported 11,494,945 shares outstanding as of July 23.
Outlook, risks and unusual items
- Management expects cash balances, offering proceeds, the credit facility and operating cash flows to fund operations for the next 12 months, while warning that working-capital needs may rise as it seeks portfolio growth. No numerical earnings or revenue guidance was provided.
- Management reported lower demand for new loans and more intense competition, prompting lower rates and origination fees. It described the COVID-19 impact to date as not material, but said worsening conditions could materially affect results, collections, collateral values and loan extensions.
- The company reported approximately 110 loans and no historical defaults or foreclosures, but acknowledged future loans may default or prove uncollectible. Certain loans originated in 2016–2020 remained outstanding past original maturity; borrowers were paying interest, and extensions may generate fees. Approximately $2.011 million of loans outstanding at June 30 were paid off after quarter-end.
- Key risks include dependence on available funding and the CEO, competition, collateral valuation and borrower concentration, lender-liability claims, and the possibility that due diligence will not identify all borrower risks. The credit line includes financial and operational covenants, dividend and share-repurchase restrictions, and cross-default provisions. The company also disclosed a personal guarantee capped at $500,000 plus enforcement costs.
- On July 2, lenders amended the credit agreement’s change-of-control definition so the CEO’s minimum ownership threshold became 20%, down from 27%. The offering and this amendment occurred after the reporting date.
Important facts for investors to verify
- How the smaller loan portfolio, lower loan pricing and competitive conditions affect future interest and origination-fee revenue.
- Loan maturities, extensions, borrower payment performance, collateral valuations and the concentration and quality of the portfolio, including the post-quarter loan payoffs.
- Actual borrowing availability under the $32.5 million facility after applying borrowing-base tests and covenants, and the effect of variable interest rates and the 2023 maturity.
- Use and impact of the offering proceeds, post-offering share count and resulting dilution; confirm whether the underwriters exercised their over-allotment option.
- Whether COVID-19 or other market changes affect demand, collections, property values, liquidity, or the company’s ability to meet REIT distribution requirements.