<PAGE> 1
FORM 10 - Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 811-3780
PMC CAPITAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2338439
- ----------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
17290 Preston Road, 3rd Floor,
Dallas, TX 75252 (214) 380-0044
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of May 1, 1996, Registrant had outstanding 10,935,490 shares of Common
Stock, par value $.01 per share.
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PMC CAPITAL, INC.
INDEX
PART I. Financial Information PAGE NO.
--------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 2
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 6
PART II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE> 3
PART I
Financial Information
ITEM 1.
Financial Statements
1
<PAGE> 4
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
ASSETS (unaudited)
<S> <C> <C>
INVESTMENTS AT VALUE:
Loans receivable, net .......................................... $ 124,319 $ 110,499
Excess servicing asset, net .................................... 5,097 4,991
Cash equivalents ............................................... 18,807 31,135
Restricted investments ......................................... 1,685 1,785
Real property owned ............................................ 5 5
--------- ---------
TOTAL INVESTMENTS ................................................ 149,913 148,415
--------- ---------
OTHER ASSETS:
Cash ........................................................... 669 439
Accrued interest receivable .................................... 828 723
Receivable for loans sold ...................................... 1,726 4,371
Due from affiliates ............................................ 1,501 1,135
Investment in subsidiaries ..................................... 34 27
Property and equipment, net .................................... 211 199
Deferred charges, deposits and other assets .................... 978 1,170
--------- ---------
Total other assets ............................................... 5,947 8,064
--------- ---------
Total assets ..................................................... $ 155,860 $ 156,479
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
SBA debentures payable ......................................... $ 43,540 $ 43,540
Notes payable .................................................. 35,001 35,001
Accrued interest payable ....................................... 962 1,434
Deferred fee revenue ........................................... 770 779
Borrower advances .............................................. 2,805 2,260
Dividends payable .............................................. 3,015 3,596
Accounts payable ............................................... 1,833 2,500
Other liabilities .............................................. 1,074 1,281
--------- ---------
TOTAL LIABILITIES ................................................ 89,000 90,391
--------- ---------
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY ......................... 7,000 7,000
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, authorized 15,000,000 shares of $.01 par value,
10,935,490 and 10,871,040 shares issued and outstanding
at March 31, 1996 and December 31, 1995, respectively ..... 109 109
Additional paid-in capital ..................................... 59,220 58,429
Undistributed net operating income ............................. 1,044 1,017
Net unrealized depreciation on investments ..................... (513) (467)
--------- ---------
59,860 59,088
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $ 155,860 $ 156,479
========= =========
NET ASSET VALUE PER COMMON SHARE ................................. $ 5.47 $ 5.44
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 5
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................. $ 4,402 $ 3,541
Premium income ....................................... 491 634
Other investment income, net ......................... 67 3
-------- --------
Total investment income ................................ 4,960 4,178
Equity in income (loss) of subsidiaries ................ 7 --
Other income, net ...................................... 513 516
-------- --------
Total income ........................................... 5,480 4,694
-------- --------
EXPENSES:
Salaries and related benefits ........................ 692 710
Rent ................................................. 46 61
Legal and accounting ................................. 50 52
Directors and shareholders expense ................... 9 10
Small Business Administration fees ................... 22 13
General and administrative ........................... 175 303
Profit sharing plan .................................. 50 45
Interest ............................................. 1,424 980
-------- --------
Total expenses ......................................... 2,468 2,174
-------- --------
Net operating income .................................. 3,012 2,520
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Recoveries on loans written-off .................... 29 --
Change in unrealized appreciation
(depreciation) on investments .................... (46) (11)
-------- --------
Total realized and unrealized gain (loss) on investments (17) (11)
-------- --------
NET OPERATING INCOME AND REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS ........................... $ 2,995 $ 2,509
======== ========
PREFERRED DIVIDENDS .................................... $ 62 $ 42
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ............. 10,918 10,709
======== ========
EARNINGS PER COMMON SHARE .............................. $ 0.27 $ 0.23
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating income and realized and unrealized gain (loss) on investments ............ $ 2,995 $ 2,509
Adjustments to reconcile net operating income and realized and unrealized
gain (loss) on investments to net cash provided by operating activities:
Loans funded, held for sale ...................................................... (5,309) (8,108)
Proceeds from sale of guaranteed loans ........................................... 5,556 7,449
Change in unrealized depreciation on investments and loans written-off ........... 46 11
Unrealized premium income, net ................................................... (175) 109
Depreciation and amortization of property and equipment and other deferred costs . 44 39
Amortization of excess servicing asset ........................................... 260 231
Accretion of discount on portfolio ............................................... (52) (56)
Accretion of deferred fees ....................................................... (148) (170)
Accretion on government securities ............................................... -- (123)
Deferred fees collected .......................................................... 336 205
(Gain) loss on sale of assets .................................................... -- (22)
Equity in gain of subsidiary ..................................................... (7) --
Net change in operating assets and liabilities:
Accrued interest receivable ................................................... (105) 120
Other assets .................................................................. 356 (248)
Accrued interest payable ...................................................... (472) (403)
Borrower advances ............................................................. 545 385
Other liabilities ............................................................. (873) (730)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................................ 2,997 1,198
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded ........................................................................... (15,106) (9,064)
Principal collected .................................................................... 3,102 1,590
Purchase of furniture and fixtures and other assets .................................... (22) (6)
Purchase of government securities ...................................................... -- (3,942)
Investment in restricted cash .......................................................... 100 (190)
Proceeds from sale of assets ........................................................... -- 153
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................................... (11,926) (11,459)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of SBA debentures .............................................. -- 3,000
Proceeds from issuance of common stock ................................................ 547 112
Payment of dividends on common stock .................................................. (3,288) (3,638)
Payment of dividends on preferred stock ............................................... (62) (45)
Advances from (to) affiliates, net .................................................... (366) (43)
Payment of debt issuance costs ........................................................ -- (79)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES .................................................... (3,169) (693)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................................ (12,098) (10,954)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................................... 31,574 33,696
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................. $ 19,476 $ 22,742
======== ========
SUPPLEMENTAL DISCLOSURE:
INTEREST PAID ......................................................................... $ 1,896 $ 1,384
======== ========
DIVIDENDS REINVESTED .................................................................. $ 245 $ 261
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 7
PMC CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of PMC Capital, Inc. ("PMC
Capital") and its subsidiaries (collectively, the "Company") as of and for the
three months ended March 31, 1996 have not been audited by independent
accountants. In the opinion of the Company's management, the financial
statements reflect all adjustments necessary to present fairly the financial
position at March 31, 1996 and the results of operations and cash flows for the
three months ended March 31, 1996. These adjustments are of a normal recurring
nature.
Certain notes and other information have been omitted from the interim
financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1995 Annual Report on Form 10-K.
The results for the first quarter of 1996 are not necessarily indicative of
future financial results.
5
<PAGE> 8
PART I
Financial Information
ITEM 2.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
CERTAIN ACCOUNTING CONSIDERATIONS
In accordance with its business and financing strategy, the Company sells
the guaranteed portions of its Small Business Administration ("SBA") loans
while retaining servicing rights. A portion of the Company's revenue is
recognized from the premium on the sale of loans, which principally represents
either cash received or an excess servicing spread. The excess servicing spread
is calculated as the present value of the difference between the interest rate
charged by the Company to a borrower and the interest rate received by the
investors who purchased the loan to the extent that this difference exceeds the
normal loan servicing fees (the "Excess Servicing Spread").
At the time of sale, the value of the Excess Servicing Spread is reported
as income and concurrently recorded as a corresponding asset on the Company's
consolidated balance sheet (the "Excess Servicing Asset").
During 1995, the Company completed a reassessment of the method used to
amortize the Excess Servicing Asset. Historically, the Company had amortized
the Excess Servicing Asset based upon the estimated life for each loan at the
time of sale, expectation of prepayments and other considerations. When a loan
was paid in full, the remaining unamortized Excess Servicing Asset, if any, was
charged against income. Considering the above factors and the Company's
historical portfolio performance, the Company extended to the expected
remaining life of the related loans, on a pooled basis, the period over which
the remaining Excess Servicing Asset would be amortized for loans originated
and sold prior to January 1, 1995. The Excess Servicing Asset is amortized on
an accelerated method over the estimated remaining lives of the related assets.
There can be no assurance of the accuracy of management's prepayment estimates.
If prepayments occur at a faster rate than expected, the amortization of the
Excess Servicing Asset will be accelerated as a charge to earnings. If actual
prepayments occur at a slower rate than estimated, cash flows from the Excess
Servicing Spread would exceed previously expected amounts and total income in
future periods would be enhanced. Management evaluates the future benefit
anticipated from the Excess Servicing Asset on an ongoing basis. If it is
determined the future benefit is impaired, the Company will reflect the
impairment as a charge to earnings during the period evaluated. To the extent
future Excess Servicing Spread exceeds the estimated amortization of the Excess
Servicing Asset pertaining to these loans, additional revenues will be
recognized.
6
<PAGE> 9
RESULTS OF OPERATIONS
General. Since 1992, the Company has reduced its reliance on the income
generated by its SBA guaranteed lending subsidiary, First Western SBLC, Inc.
("First Western"). During such period, the Company's other lending activities
have increased, and the Company has established other revenue sources. In the
opinion of management, this diversification has provided a base of income which
should enhance future profits.
At March 31, 1996, PMC Capital has outstanding senior unsecured notes in
an aggregate principal amount of $35,000,000 (the "Senior Unsecured Notes")
with a weighted average interest rate of approximately 7.4%. All proceeds from
the Senior Unsecured Notes were used to originate non-SBA loans with interest
rates typically ranging from 10.5% to 11.5% plus a commitment fee of 3%, or to
purchase loans from the Resolution Trust Corporation ("RTC") and/or its agents.
The spread between the rate at which PMC Capital's non-SBA lending program has
borrowed funds and the rate at which it has loaned these funds is currently
generating a positive effect on the Company's net operating income. All of the
loans originated by PMC Capital have penalty provisions as a disincentive for
prepayment. However, in a declining interest rate environment, when borrowers
could refinance at lower interest rates, the likelihood of prepayment
increases. If the loans are prepaid, the Company may have to originate new
loans with these funds at a lower interest rate. The Company anticipates that
even if relending rates were lower, they would likely continue to exceed the
cost of funds and generate a positive spread. In periods of rising interest
rates, the likelihood of prepayments on loans with fixed interest rates is
reduced.
Western Financial Capital Corporation, ("Western Financial") and PMC
Investment Corporation ("PMIC") have continued to increase lending activities.
The SBA, which regulates SBIC operations, provided certain statutory relief
during 1994 allowing Western Financial and PMIC to increase their portfolio
investments in the non-developer hospitality industry in excess of one-third of
their respective outstanding portfolios. Consequently, these two subsidiaries
have become more active lenders.
The following table sets forth information concerning the aggregate gross
loans funded for the Company and the respective changes from previous periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994
--------------------- ---------------------
( in millions)
Increase Increase
Company Funded (Decrease) Funded (Decrease)
------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
PMIC $21.2 107.8% $10.2 209.1%
Western
Financial 8.0 11.1% 7.2 500.0%
First Western 40.6 (2.4%) 41.6 (22.0%)
PMC Capital 7.7 (53.0%) 16.4 0.6%
----- -----
Total $77.5 2.8% $75.4 1.8%
===== =====
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------------------------------
1996 1995
--------------------- ---------------------
(in millions)
Increase Increase
Company Funded (Decrease) Funded (Decrease)
------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
PMIC $ 7.4 85% $ 4.0 *
Western
Financial 2.4 100% 1.2 *
First Western 7.1 (34%) 10.8 23%
PMC Capital 3.5 192% 1.2 (80%)
----- -----
Total $20.4 19% $17.2 18%
===== =====
</TABLE>
* Balances in the first quarter of 1994 were negligible, accordingly
percentage increases were not applicable.
Increased revenues were also generated by PMC Advisers, Inc. ("PMC
Advisers"), which provides investment advisory services to PMC Commercial
Trust, ("PMC Commercial") pursuant to an investment management agreement.
Continuing increases in advisory fee income are expected as a result of
anticipated increases in the loan portfolio of PMC Commercial. During the first
quarter of 1996, advisory fees were $356,000 as compared to $301,000 during the
first quarter of 1995, an 18% increase.
Substantially all of the loans of First Western are variable rate which
are reset quarterly based on a spread above the prime rate of interest charged
by the banking industry ("Prime Rate"). The spread over the Prime Rate is
typically 2.5% to 2.75%. From February 1994 to September 1995, the Prime Rate
charged by major banking institutions increased from 6% to 9%. These increases
caused the stated interest rate on First Western's variable rate loan portfolio
to be increased by 300 basis points through September 30, 1995. This upward
trend increased the yield on First Western's retained loan portfolio by 50%.
From October 1, 1995 through March 31, 1996, the yield on First Western's
portfolio was reduced 50 basis points due to decreases in the Prime Rate to
8.50%. Accordingly, the yield on First Western's retained portfolio decreased
during the quarter ended March 31, 1996. In February 1996, the Prime Rate
further reduced 25 basis points, and the yield on First Western's loan
portfolio will be further reduced beginning April 1, 1996.
Primarily as a result of the current interest rate environment for both
fixed-rate and variable rate loans, First Western is presently experiencing
some prepayments on its variable rate loans.
The interest rate environment and certain applicable legislative changes
have affected the secondary market for the SBA Section 7(a) guaranteed portion
of loans originated by First Western. The most notable legislative changes
resulted from the Revenue Reconciliation Act of 1993 which required SBA program
lenders to pay a fee of 40 basis points per annum on the outstanding principal
8
<PAGE> 11
balance of any loans sold in the secondary market subsequent to August 31, 1993
and reduced the SBA guaranteed percentage of certain loans. This fee has
increased from 40 basis points to 50 basis points for all loans approved after
October 1, 1995 irrespective of whether the guaranteed portions of these loans
are sold into the secondary market. Since the Company has historically sold the
guaranteed portion of its SBA Section 7(a) loans into the secondary market, the
effect of this change to First Western will be the increase in fees from 40
basis points to 50 basis points. The value of the guaranteed portion of loans
decreased as a result of the fee increase and the percentage of loans eligible
to be sold through the secondary market diminishing by the reduction in the SBA
guarantee percentage. The effect to the Company as a result of this change was
not significant during the quarter ended March 31, 1996. Additionally, as
interest rates fluctuated during 1994, the secondary market demand for the
guaranteed portion of the SBA Section 7(a) loans decreased and as a result
premiums declined. The secondary market demand increased in late 1994,
continued through 1995, and stabilized during the first quarter of 1996. The
increases in 1995 have partially offset the negative effect of the fees of 40
basis points per annum established in 1993. Continued program and market
changes may have an adverse effect on future periods of operations.
Effective October 1995, the fees charged to the borrower by the SBA for
the SBA's guaranty of a loan to the lender increased and are now based on the
amount of the originated loan and ranging from 2% to 3.875% of the guaranteed
portion of the loan. The fees had been 2% of the guaranteed portion of the
loan. The Company does not know what impact, if any, these changes will have on
future loan originations of First Western.
The future profitability of the Company's SBA Section 7(a) lending
activities will be impacted by a number of factors including: (i) the more
efficient capital structure achieved by First Western's securitization and
future securitizatons, (ii) volume of lending, (iii) length of loans, (iv)
structure of sales to the secondary market, (v) interest rates charged and
related terms, (vi) quality of portfolio, (vii) prepayment experience and
(viii) legislative and/or regulatory changes.
Any aspect of the SBA programs under which the Company participates could
be modified by legislation or agency policy changes. PMC Capital has evaluated
alternative lending strategies and would pursue such strategies should the SBA
programs under which any of its subsidiaries operates were to be eliminated or
significantly curtailed.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Interest income increased by $861,000, or 24%, from $3,541,000 for the
three months ended March 31, 1995 to $4,402,000 for the three months ended
March 31, 1996. This increase was primarily attributable to PMIC, Western
Financial, First Western and PMC Capital's increased loan portfolios. The
average loan portfolio outstanding during the first quarter of 1996 and 1995
was $117 million and $79 million, respectively, a 48% increase. Accordingly,
interest income on loans increased by $979,000, or 32%, from $3,077,000 during
the three months ended March 31, 1995 to $4,056,000 during the three months
ended March 31, 1996. Interest on temporary investments decreased by $118,000,
or 25%, from $464,000 during the three months ended March 31, 1995 to $346,000
during the three months March 31, 1996. During the first quarter of 1995, the
Company
9
<PAGE> 12
earned increased interest on temporary investments due to the funds received
from the securitization and structured sale of assets during December 1994
which were initially placed in short-term investments. During the first quarter
of 1996, average temporary investments were less than the average temporary
investments outstanding during the first quarter of 1995.
Premium income decreased by $143,000, or 23%, from $634,000 for the three
months ended March 31, 1995 to $491,000 for the three months ended March 31,
1996. This decrease was primarily attributable to the decrease in the amount of
loans sold during the three month period ended March 31, 1996 ($5.3 million) as
compared to the three month period ended March 31, 1995 ($8.1 million).
Other investment income, net, increased by $64,000 from $3,000 for the
three months ended March 31, 1995 to $67,000 for the three months ended March
31, 1996. This increase was primarily attributable to prepayment fees received
on loans during the three months ended March 31, 1996. There were no prepayment
fees assessed during the three months ended March 31, 1995.
Other income, net, decreased by $3,000, or 1%, from $516,000 during the
three months ended March 31, 1995 to $513,000 during the three months ended
March 31, 1996. Other income increased in the first quarter of 1996 as compared
to the first quarter of 1995 as a result of investment management fees
generated by PMC Advisers. This increase was offset by decreases in
construction fee income (due to the inclement weather) and reduction in other
miscellaneous items.
Operating expenses, not including interest, decreased by $150,000, or 13%,
from $1,194,000 during the three months ended March 31, 1995 to $1,044,000
during the three months ended March 31, 1996. This was primarily a result of a
$128,000 decrease in administrative and general costs. During the three months
ended March 31, 1996, the Company experienced decreased advertising, telephone,
postage, travel and miscellaneous expenses which comprised most of such
decrease.
Interest expense increased by $444,000, or 45%, from $980,000 during the
three months ended March 31, 1995 to $1,424,000 during the three months ended
March 31, 1996. The increase was primarily attributable to; (i) the interest
expense on $14,260,000 of SBA debentures issued or assumed after March 31, 1995
by PMIC and Western Financial, (ii) the scheduled increase in interest rate on
$5,000,000 of PMIC's SBA debentures during 1995 and (iii) the issuance of
$10,000,000 of Senior Notes by PMC Capital in April 1995.
Realized and unrealized gain (loss) on investments increased from a loss
of $11,000 during the three months ended March 31, 1995 to a loss of $17,000
during the three months ended March 31, 1996, a 55% increase. During both
periods, losses were minimal. During the first quarter of 1996, the Company
recognized $29,000 in recoveries which reduced the net loss during the period.
There were no comparable recoveries during the three months ended March 31,
1995.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The primary use of the Company's funds is to originate loans. In addition,
the Company may use funds to acquire loans from governmental agencies and/or
their agents. The Company also uses funds for general and administrative
expenses, dividends to shareholders, interest expense, capital expenditures,
advances on loan liquidations and payments due on borrowing facilities.
Approximately $2.5 million of the Company's SBA debentures become payable in
September 1996. This amount could, subject to SBA approval, be rolled over into
new SBA debentures. As a regulated investment company, pursuant to the Internal
Revenue Code of 1986, the Company is required to pay out substantially all of
its net investment company taxable income to its common shareholders. To
sustain growth in the size of its investment portfolio, the Company continually
reviews the need for obtaining additional funds from either: (i) debt offerings
and additional credit facilities, (ii) securitization and sale of a portion of
the loan portfolio and/or (iii) equity offerings. Historically, the Company's
primary sources of capital and liquidity have been debentures issued through
programs of the SBA, private and public issuances of common stock, the issuance
of senior unsecured notes, a securitization and sale of its loan portfolio and
the utilization of its short-term, uncollateralized line of credit.
Funding availability under the SBA's SBIC and SSBIC programs is limited.
With regard to leverage, the SBA currently has leverage funding availability
based upon prior years funded amounts. In order to determine which licensees
are to receive funding, the SBA will give first priority to issue debentures to
those licensees which are to use such funds to refinance matured debentures and
second priority to fund those licensees requesting leverage which when issued
will not cause outstanding leverage to be greater than two times their
regulatory capital. PMIC and Western Financial have aggregate amounts of SBA
leverage which are currently at or greater than two times their regulatory
capital. The SBA has notified its licensees under the SSBIC program that there
is no subsidized leverage or preferred stock available for the remainder of the
SBA's current fiscal year ending September 30, 1996.
Loan commitments outstanding at March 31, 1996 to various prospective
small business companies, including the unfunded portion of projects in the
construction phase, amounted to approximately $90.0 million. Of these
commitments, $40.7 million were for loans partially guaranteed by the SBA of
which approximately $30.5 million will be sold into the secondary market. Such
commitments are made in the ordinary course of the Company's business.
Commitments to extend credit are agreements to lend to a customer provided that
the terms established in the contract are met. Commitments generally have fixed
expiration dates and require payment of a fee. Since some commitments expire
without the proposed loan closing, the total commitment amounts do not
necessarily represent future cash requirements.
During April 1995, the Company issued $10 million of Senior Unsecured
Notes, $5 million of which is due in April 2003 with a fixed interest rate of
8.6% and the remaining $5 million is due in April 2004 with a variable interest
rate of LIBOR plus 1.30% (7.24% at March 31, 1996). During May 1995, PMIC
issued $2 million in preferred stock and Western Financial assumed $2.26
million in SBA debentures in exchange for the previously participated portion
of certain loans. During March 1995, June 1995 and September 1995, the
Company's subsidiaries issued $3 million, $5 million and
11
<PAGE> 14
$7 million in SBA debentures, respectively. The Company also has a short-term
line of credit under which it can borrow approximately $10 million. In
addition, at March 31, 1996, the Company had $19.5 million in cash and cash
equivalents.
The lack of availability to issue SBA debentures through September 30,
1996 will require the Company to utilize other sources of funds prior to that
time. The cost and terms of these other sources of funds will not be as
favorable as those typically achieved on SBA debentures, however, the Company
has historically been able to issue debt through private placement of notes and
receive working capital through securitization and sale of a portion of its
portfolio. When additional funds are required, the Company will attempt to
either issue additional senior unsecured notes, privately or publicly raise
equity and/or securitize and structure a sale of either the unguaranteed
portion of SBA loans or the portfolio of PMC Capital, Western Financial and
PMIC. Management believes that through utilization of one or more of these
sources of debt or equity capital, the Company should meet its liquidity needs
for the forseeable future. At present, the Company is evaluating the structured
sale of a portion of the portfolio of PMC Capital, Western Financial and PMIC.
No assurances can be made that this source of financing will be available to
the Company.
PMC Capital is required to maintain a minimum of 200% asset coverage of
debt as defined in sections 18 and 61 of the Investment Company Act of 1940 as
modified by exemptive orders obtained by the Company from the Securities and
Exchange Commission. The Company is in compliance with these requirements at
March 31, 1996.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED ON THIS FORM 10-Q
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
future growth of the loan portfolio and availability of funds. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward- looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Form 10-Q will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
12
<PAGE> 15
PART II
Other Information
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
13
<PAGE> 16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMC Capital, Inc.
Date: 5/14/96 \s\ Lance B. Rosemore
--------------------------- -----------------------------
Lance B. Rosemore
President
Date: 5/14/96 \s\ Barry N. Berlin
-------------------------- -----------------------------
Barry N. Berlin
Chief Financial Officer
(Principal Accounting Officer)
14
<PAGE> 17
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MARCH 31, 1996 FORM 10-Q OF PMC CAPITAL INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 669
<SECURITIES> 18,807
<RECEIVABLES> 127,386<F1>
<ALLOWANCES> (513)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 502
<DEPRECIATION> (291)
<TOTAL-ASSETS> 155,860<F2>
<CURRENT-LIABILITIES> 8,615<F3>
<BONDS> 78,541
<COMMON> 59,329
4,000<F4>
3,000<F4>
<OTHER-SE> 531
<TOTAL-LIABILITY-AND-EQUITY> 155,860<F5>
<SALES> 0
<TOTAL-REVENUES> 5,480<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,044
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 1,424
<INCOME-PRETAX> 2,995
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,995
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<FN>
<F1>Includes current and long term portion of all loans receivable - before
reserve, interest receivable on loans and receivable for loans sold. Does not
include receivable from affiliate.
<F2>Includes the following items not included above
(i) Excess servicing asset $ 5,097
(ii) Restricted investments 1,685
(iii) Real property owned 5
(iv) Due from affiliates 1,501
(v) Deferred charges, deposit and
other assets, net 978
(vi) Investment in subsidiary 34
-----------
$ 9,300
===========
<F3>Includes the following:
(i) Accrued interest payable $ 962
(ii) Borrower advances 2,805
(iii) Dividends payable 3,015
(iv) Accounts payable 1,833
-----------
$ 8,615
===========
<F4>Preferred stock of subsidiary held by SBA. See footnotes to financial
statements.
<F5>Includes the following items not included above
(i) Deferred fee revenue $ 770
(ii) Other liabilities 1,074
-----------
$ 1,844
===========
<F6>Revenues consist primarily of interest and other yield on investments.
</FN>
</TABLE>
