Manhattan Bridge Capital, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; separate fourth-quarter results are not clearly provided. The company is a REIT specializing in short-term, first-mortgage loans to real estate investors, primarily in the New York metropolitan area and Florida.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $6.808 million | $7.006 million | Down 2.8% |
| Net income | $4.423 million | $4.229 million | Up 4.6% |
| Basic and diluted EPS | $0.42 | $0.44 | Down $0.02 |
| Net cash from operations | $4.599 million | $4.222 million | Up $0.378 million |
| Net cash used in investing | $7.617 million | $4.607 million | Greater use of cash |
- Interest income declined to $5.609 million from $5.989 million; origination fees rose to $1.199 million from $1.018 million. Management attributed lower revenue overall to reduced loan rates and fees amid competition and market conditions.
- Net income increased despite lower revenue, mainly because interest and deferred-financing-cost expense fell 22.9% to $1.046 million and general and administrative expense fell 5.9% to $1.349 million. Net margin was approximately 65.0%, versus 60.4% in 2020.
- Loans receivable grew to $65.715 million from $58.098 million. The portfolio comprised 131 loans, compared with 128; originations were $49.268 million and repayments were $41.650 million. The weighted-average contractual loan rate declined to 9.53% from 10.33%.
- Cash was $143,000 at year-end, with no restricted cash balance reported. Total assets were $67.206 million and stockholders’ equity was $43.386 million.
- Debt at year-end included $15.646 million drawn on the credit line and $6.000 million principal of senior secured notes (reported at $5.678 million net of deferred financing costs). Gross principal debt was approximately $21.646 million. The credit line limit was $32.5 million and its year-end rate was approximately 4.10%; it matures February 28, 2023. The notes bear 6% interest and mature April 22, 2026.
- Cash provided by financing activities was $2.701 million, including $12.354 million net proceeds from a July share offering, offset by $4.663 million of net credit-line repayments and $4.990 million of dividends paid. The offering issued 1.875 million shares at $7.20 each.
- Year-end unfunded construction-loan commitments were approximately $7.214 million, up from $4.60 million. The company reported $1.437 million of dividends payable at year-end; its subsequent declared quarterly dividend was $0.125 per share.
Material changes and notable items
- The equity offering reduced credit-line borrowings and supported portfolio growth, while increasing shares outstanding and diluting existing holders.
- Management’s 2021 salary waiver of $76,250 and the absence of the CEO’s $80,000 2020 bonus contributed to lower expenses.
- On March 7, 2022, lenders waived the company’s failure to meet its fixed-charge coverage ratio for the period ended December 31, 2021. The waiver also excluded $700,000 of fourth-quarter 2021 distributions from the ratio calculation for the first three quarters of 2022. The filing says the company was otherwise in compliance with credit-line covenants at year-end.
- After year-end, $7.986 million of loans receivable outstanding at December 31, 2021 was paid off, including $3.134 million originally due in or before 2021.
Outlook, risks and contingencies
- Management expects current cash, offering proceeds, credit-line capacity and operating cash flow to fund operations for the next 12 months, but expects working-capital needs to increase as it pursues growth. As of March 4, 2022, the company reported approximately $10.2 million of available credit-line capacity.
- Management said COVID-19 had slowed capital deployment and reduced demand for new loans, but had not materially affected operations to date; a worsening pandemic could have a material effect. No numerical earnings or revenue guidance was provided.
- Key exposures include competition and loan-pricing pressure, variable borrowing costs versus predominantly fixed-rate loan yields, reliance on a concentrated regional real-estate market, borrower repayment and collateral values, and dependence on credit-line access and covenant compliance. Most collateral properties are not income-producing. The company reported no loan defaults or foreclosures since commencing business, but maintains no allowance for credit losses.
- The credit line is secured, includes financial and operating covenants and cross-default provisions, and may restrict dividends and other actions. The notes require mortgage loans plus cash held by the subsidiary to equal at least 120% of notes principal. REIT qualification also requires distribution of at least 90% of REIT taxable income and compliance with asset and ownership tests.
- The independent auditor issued an unqualified opinion on the financial statements and identified the allowance for credit losses as a critical audit matter, citing judgment involved in management’s conclusion that no allowance was required. Management assessed internal control over financial reporting as effective; the auditor did not attest to that assessment. No legal proceedings were reported.
Important facts for investors to verify
- Review the March 2022 covenant waiver, subsequent fixed-charge coverage calculations, credit-line borrowing availability and refinancing plans before the February 2023 maturity.
- Assess the loan portfolio’s maturity and extension profile, collateral valuations, unfunded construction commitments, and collections—including whether post-year-end repayments were replaced with new originations.
- Evaluate the basis for recording no credit-loss allowance, given the auditor’s critical audit matter and the portfolio’s exposure to non-income-producing properties and regional real-estate conditions.
- Confirm dividend sustainability against REIT distribution requirements, available cash, lender restrictions and the company’s leverage and working-capital needs.
- Consider the effects of the 2021 share issuance on per-share performance, alongside the CEO’s 22.5% ownership and the company’s reliance on key executives.