Manhattan Bridge Capital, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparisons are to FY2021. The company is a mortgage REIT originating, servicing, and managing short-term first-mortgage loans to real estate investors, primarily in the New York metropolitan area and Florida.
Financial and operating results
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Total revenue | $8.571 million | $6.808 million |
| Interest income / origination fees | $6.773 million / $1.798 million | $5.609 million / $1.199 million |
| Interest and deferred financing cost expense | $1.823 million | $1.046 million |
| General and administrative expenses | $1.549 million | $1.349 million |
| Net income | $5.212 million; $0.45 per share | $4.423 million; $0.42 per share |
| Net cash from operating activities | $5.167 million | $4.599 million |
| Cash | $104,000 | $143,000 |
| Loans receivable | $74.483 million | $65.715 million |
| Total debt | $30.747 million | $21.324 million |
| Stockholders’ equity | $42.864 million | $43.386 million |
FY2022 loan originations were $60.916 million and repayments were $52.147 million. The portfolio had 122 loans outstanding, versus 131 a year earlier; the weighted-average contractual rate was 10.44%, compared with 9.53%. Unfunded construction-loan commitments were approximately $8.581 million, up from $7.210 million.
Investing activities used $8.771 million of cash, chiefly reflecting loan originations net of collections. Financing activities provided $3.565 million, including $9.348 million of net credit-line proceeds, offset by $5.747 million of dividends paid. The balance sheet also reported $1.437 million of dividends payable.
Changes versus FY2021
- Revenue rose 25.9%, reflecting higher interest income and origination fees as lending activity increased.
- Net income rose 17.8%; the increase was partly offset by a 74.3% rise in interest and financing-cost expense and higher general and administrative expenses.
- The credit-line balance increased by $9.348 million to $24.994 million at year-end; senior secured notes were $6.0 million principal, bearing fixed interest at 6% and maturing in 2026.
- Loan originations and repayments both increased. The portfolio’s weighted-average rate and average outstanding loan balance rose, while the number of outstanding loans declined.
Outlook, risks, and notable items
- Management outlook: Management expects cash, the credit facility, and operating cash flow to fund operations for the next 12 months, while anticipating higher working-capital needs as it pursues growth. No specific earnings or dividend guidance is provided.
- Rates and demand: Management reports rising benchmark rates increased borrowing costs and slowed capital deployment and loan demand, reducing origination-fee opportunities. It says it is raising rates on commercial loans; most loans also include a provision allowing a rate of at least prime plus 3%.
- Credit and collateral: Loans are short-term, generally interest-only with balloon principal payments, and many underlying properties are not income-producing. Repayment can depend on refinancing or property sale. The company reported no foreclosures since beginning operations in 2007 and no allowance for credit losses at year-end, but its auditor identified the allowance assessment as a critical audit matter.
- Leverage and liquidity: The $32.5 million credit line is secured by mortgage assignments, has financial and operating covenants, and bears variable-rate interest. A covenant breach could lead to acceleration or reduced borrowing capacity. The company reported compliance at December 31, 2022; it had received a waiver of its fixed-charge coverage covenant for the period ended December 31, 2021.
- Subsequent credit-line amendment: An amendment signed January 31, 2023, effective January 2, transitioned the benchmark from LIBOR to SOFR, extended the facility maturity to February 28, 2026, revised covenant calculations and loan limits, and removed a requirement to pledge additional mortgage loans. The CEO’s maximum personal guarantee increased to $1.0 million plus enforcement costs.
- Cybersecurity: The company disclosed a June 2022 incident involving a hacked unused server and an executive’s personal computer. It reported no financial loss or operational impact but said client records may have been copied.
- REIT and dividends: The company must generally distribute at least 90% of REIT taxable income to retain REIT status. Distributions are subject to board discretion, liquidity, covenants, and other constraints; the credit agreement restricts dividends in specified borrowing conditions.
- Other governance and concentration risks: Approximately 95.9% of loans by count were secured by properties in the New York metropolitan area, New Jersey, or Connecticut. CEO Assaf Ran beneficially owned 22.6% of shares at year-end and is central to loan sourcing and approvals. The filing reports no legal proceedings.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective as of year-end. The independent auditor’s report did not include an audit opinion on internal controls.
Key facts for investors to verify
- Current credit-line availability, applicable SOFR pricing, covenant headroom, and compliance after the January 2023 amendment.
- Loan performance, extensions and maturities, subsequent repayments, collateral values, and the assumptions supporting a zero credit-loss allowance.
- Whether loan yields and fees continue to offset variable funding costs as rates and origination demand change.
- Cash available for distributions, dividend restrictions under the credit facility, and the REIT taxable-income distribution requirement.
- Potential consequences of the cybersecurity incident, including any confirmed exposure of client records and any resulting claims or costs.