Manhattan Bridge Capital, Inc. — Q3 2020 Form 10-Q
Business and period: The company originates and manages short-term, first-mortgage real estate loans to investors, primarily in the New York metropolitan area and Florida. This unaudited report covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $1.786 million | $1.917 million | $5.239 million | $5.484 million |
| Operating income | $1.141 million | $1.147 million | $3.249 million | $3.347 million |
| Net income | $1.151 million | $1.150 million | $3.264 million | $3.355 million |
| Basic and diluted EPS | $0.12 | $0.12 | $0.34 | $0.35 |
- Revenue comprises loan interest and origination fees. Q3 revenue fell 6.8% year over year; nine-month revenue fell 4.5%. Management attributed the declines to lower loan rates and origination fees, competition, and reduced demand amid COVID-19.
- Nine-month interest and debt-service costs declined 16.7% to $1.017 million, mainly due to lower LIBOR rates. Nine-month general and administrative expense increased 6.1% to $969,000.
- At September 30, loans receivable were $57.883 million, up from $53.485 million at year-end 2019. Total assets were $59.021 million and stockholders’ equity was $33.016 million.
- Cash was $157,000. Nine-month operating cash flow was $3.263 million; investing cash outflow was $4.384 million; financing cash inflow was $1.159 million.
- Debt included $19.780 million outstanding under the revolving credit line and $5.584 million of senior secured notes, net of financing costs. The $32.5 million credit facility matures February 28, 2023; its reported rate was approximately 4.15% at quarter-end. The company said it was in covenant compliance.
Changes, capital and portfolio
- Net income was nearly unchanged in Q3, but declined 2.7% for the first nine months. Lower revenue was partly offset by reduced interest expense.
- The company issued $35.410 million of loans and collected $31.042 million during the first nine months. It had $5.192 million of conditional construction-loan commitments at September 30.
- Management reported no loan impairments or defaults. Two long-term borrowers received COVID-related forbearances in Q2, deferring two to three months of interest to scheduled payoff dates; both had resumed monthly interest payments. Subsequent to quarter-end, borrowers repaid $2.534 million of loans, including $1.005 million originally due by September 30.
- The company paid $3.181 million in dividends and repurchased 38,899 shares for approximately $179,000 in the first nine months. A $0.10-per-share dividend, totaling approximately $962,000, was paid October 15, 2020.
Outlook, risks and notable disclosures
- Management expected cash, operating cash flows and the credit facility to fund operations for the next 12 months. It reported slower capital deployment and lower demand for new loans since the pandemic began, but said the business had not been materially affected to date.
- Management could not estimate COVID-19’s future effects and warned that worsening conditions could materially affect results, including through weaker loan demand, delayed interest collections, lower collateral values, or loan extensions.
- Other stated risks include competition, reliance on the CEO, borrower and collateral risks, and dependence of loan originations and profits on available funding. The company’s business is concentrated in specified real estate markets.
- The company elected REIT tax treatment and generally must distribute at least 90% of REIT taxable income to maintain that status. It also disclosed a commitment to repurchase up to 100,000 shares through February 25, 2021; 61,101 remained authorized at quarter-end.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing disclosed no off-balance-sheet arrangements.
Investor verification priorities
- Review loan-level credit quality, collateral valuations, borrower concentration and the status of extended or forborne loans, including subsequent repayments.
- Confirm credit-facility availability and covenant headroom, and assess the $6 million face amount of senior notes and noteholder redemption rights exercisable for April 2021.
- Track COVID-19 effects on origination volumes, loan yields, collections and property values, as well as the company’s ability to maintain dividends and liquidity.
- Reconcile the REIT distribution requirement with taxable income and cash distributions; the filing does not provide a clear current-year REIT taxable-income figure.