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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22148
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PMC COMMERCIAL TRUST
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(Exact name of registrant as specified in its charter)
TEXAS 75-6446078
- ---------------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
17290 Preston Road,
3rd Floor, Dallas, TX 75252 (972) 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
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As of May 1, 1997, Registrant had outstanding 6,192,210 Common Shares of
Beneficial Interest, par value $.01 per share.
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information PAGE NO.
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 (Unaudited) and December 31, 1996 2
Consolidated Statements of Income (Unaudited) -
Three Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
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PART I
Financial Information
ITEM 1.
Financial Statements
1
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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ASSETS (unaudited)
<S> <C> <C>
Investments:
Loans receivable, net .............................. $ 104,203 $ 91,981
Cash equivalents ................................... 13,397 25,952
Restricted investments ............................. 3,197 2,759
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Total investments .................................... 120,797 120,692
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Other assets:
Cash ............................................... 18 32
Interest receivable ................................ 583 615
Deferred borrowing costs, net ...................... 401 376
Other assets, net .................................. 19 34
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Total other assets ................................... 1,021 1,057
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Total assets ......................................... $ 121,818 $ 121,749
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LIABILITIES AND BENEFICIARIES' EQUITY
Liabilities:
Notes payable ...................................... $ 26,408 $ 26,648
Borrower advances .................................. 3,905 4,492
Dividends payable .................................. 2,466 2,495
Unearned commitment fees ........................... 1,184 1,160
Due to affiliates .................................. 370 625
Unearned construction monitoring fees .............. 153 185
Interest payable ................................... 148 149
Other liabilities .................................. 141 166
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Total liabilities .................................... 34,775 35,920
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Beneficiaries' equity:
Common shares of beneficial interest; authorized
100,000,000 shares of $0.01 par value;
6,165,495 and 6,085,495 shares issued and
outstanding at March 31, 1997 and
December 31, 1996, respectively .................. 62 61
Additional paid-in capital ......................... 87,605 86,249
Cumulative net income .............................. 17,613 15,288
Cumulative dividends ............................... (18,237) (15,769)
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Total beneficiaries' equity .......................... 87,043 85,829
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Total liabilities and beneficiaries' equity .......... $ 121,818 $ 121,749
============ ============
Net asset value per share ............................ $ 14.12 $ 14.10
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
2
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1997 1996
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(Unaudited)
<S> <C> <C>
Revenues:
Interest income - loans ....................... $ 2,777 $ 1,796
Interest and dividends - other investments .... 287 54
Other income .................................. 100 57
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Total revenues .................................. 3,164 1,907
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Expenses:
Advisory and servicing fees, net .............. 331 276
Legal and accounting fees ..................... 14 9
General and administrative .................... 31 25
Provision for loan losses ..................... 20 --
Interest ...................................... 444 252
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Total expenses .................................. 840 562
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Net income ...................................... $ 2,324 $ 1,345
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Net income per share ............................ $ 0.38 $ 0.38
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Weighted average shares outstanding ............. 6,127,042 3,519,612
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
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(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 2,324 $ 1,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of discount and fees ...................... (153) (87)
Amortization of organization and borrowing costs .... 13 2
Loan loss reserve ................................... 20 --
Commitment fees collected, net ...................... 285 261
Construction monitoring fees collected, net ......... 28 102
Changes in operating assets and liabilities:
Accrued interest receivable ..................... 32 26
Other assets .................................... (23) (359)
Interest payable ................................ (1) 171
Borrower advances ............................... (587) 527
Due to affiliates ............................... (255) 199
Other liabilities ............................... (25) (8)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 1,658 2,179
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CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded ............................................ (13,955) (4,830)
Principal collected ..................................... 1,544 1,015
Investment in restricted cash ........................... (438) (2,411)
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NET CASH USED IN INVESTING ACTIVITIES ..................... (12,849) (6,226)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares ................ 1,250 749
Proceeds from issuance of notes payable ................ -- 33,740
Payment of dividends ................................... (2,388) (1,484)
Payment of principal on notes payable .................. (240) (12,160)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ....... (1,378) 20,845
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...... (12,569) 16,798
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............ 25,984 207
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CASH AND CASH EQUIVALENTS, END OF PERIOD .................. $ 13,415 $ 17,005
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SUPPLEMENTAL DISCLOSURES:
Dividends reinvested ................................... $ 107 $ 34
========== ==========
Dividends declared, not paid ........................... $ 2,466 $ 1,310
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Interest paid .......................................... $ 450 $ 80
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet of PMC Commercial Trust
("PMC Commercial") and its subsidiaries (collectively the "Company") as of
March 31, 1997 and the consolidated statements of income and cash flows for
the three months ended March 31, 1997 and 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
Company's financial position at March 31, 1997, and the results of operations
and cash flows for the three months ended March 31, 1997 and 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
financial statements and notes thereto included in the Company's 1996 Annual
Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The results for the three months ended March 31, 1997 are not
necessarily indicative of future financial results.
NOTE 2. BASIS FOR CONSOLIDATION
On March 7, 1996, PMC Commercial Receivable Limited Partnership, a
Delaware limited partnership ("PCR" or "the Partnership"), and PMC Commercial
Corp., a Delaware corporation, were formed. PMC Commercial Corp. is the
general partner for PCR. The consolidated financial statements include the
accounts of PMC Commercial, PMC Commercial Corp. and PCR. PMC Commercial owns
100% of PMC Commercial Corp. and directly or indirectly all of the partnership
interests of PCR (see Note 5).
NOTE 3. DIVIDENDS TO BENEFICIARIES
During the three month period ended March 31, 1997, PMC Commercial
declared dividends to its shareholders of beneficial interest of $0.40 per
share.
NOTE 4. DUE TO AFFILIATE
Pursuant to an investment management agreement (the "Investment
Management Agreement") between the Company and PMC Advisers, Inc., an
affiliated entity (the "Investment Manager"), the Company incurred fees of
approximately $386,000 for the three months ended March 31, 1997. Of the
servicing and advisory fees paid or payable to the Investment Manager as of
March 31, 1997, $55,000 has been offset against commitment fees as a direct
cost of originating loans.
5
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PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. DUE TO AFFILIATE (CONTINUED)
Pursuant to the amended Investment Management Agreement, the quarterly
servicing and advisory fee (the "Base Fee") is equal to (i) 0.4167% (1.67% on
an annual basis) of the lesser of (a) the average quarterly value of common
equity capital or (b) the average quarterly value of all invested assets and
(ii) 0.21875% (0.875% on an annual basis) of the difference between the average
quarterly value of all invested assets and the average quarterly value of
common equity capital. For purposes of calculating the Base Fee, the average
quarterly value of common equity capital was not increased by the proceeds
received from any public offering of common shares by the Company (other than
pursuant to the Company's dividend reinvestment plan or any employee/trust
manager benefit plan) during the 180 day period ended December 31, 1996.
Beginning January 1, 1997, the average quarterly value of common equity capital
includes $34.5 million of proceeds received from a public offering of
2,335,000 Common Shares of Beneficial Interest completed by PMC Commercial
during July 1996 (the "Offering"). In no event will the aggregate annual fees
charged under the amended agreement be greater than that which would have been
charged had there been no revision to the Investment Management Agreement.
NOTE 5. NOTES PAYABLE
On March 12, 1996, the Partnership, a special purpose affiliate of PMC
Commercial, completed a private placement (the "Private Placement") of $29.5
million of its Fixed Rate Loan Backed Notes, Series 1996-1 (the "Notes"). The
Notes, issued at par, which mature in 2016 and bear interest at the rate of
6.72% per annum, are collateralized by approximately $39.7 million of loans
contributed by PMC Commercial to the Partnership at inception (of which $36.1
million remained outstanding at March 31, 1997). Approximately $26.4 million
of Notes remained outstanding at March 31, 1997.
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. SFAS No. 128 is designed to
improve the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of PMC Commercial's earnings per
share data to that of similar entities. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997. In the
opinion of management, the effect of this pronouncement on earnings per share
will not be significant.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure." SFAS No. 129 requires certain disclosure
about an entity's capital structure. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. In the opinion of
management, the effect of this pronouncement on the Company's financial
position or results of operations will not be significant.
6
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PART I
Financial Information
ITEM 2 .
Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
PMC Commercial was organized in June 1993 and had no operations prior to
completion of its initial public offering (the "IPO") on December 28, 1993.
During the three months ended March 31, 1997, the Company funded loans of
approximately $14 million and collected commitment fees of approximately
$285,000. During the years ended December 31, 1996 and 1995, PMC Commercial
originated and funded loans of approximately $40.4 million, and $31.7 million,
respectively, and collected commitment fees of approximately $1.3 million and
$546,000, respectively.
As of March 31, 1997, the total portfolio outstanding was $105.9
million ($104.2 million after reductions for loans purchased at a discount and
deferred commitment fees) with a weighted average contractual interest rate of
approximately 11.0%. The weighted average contractual interest rate does not
include the effects of the amortization of discount on purchased loans or
commitment fees on funded loans. Generally, these loans are collateralized by
first liens on real estate, and are guaranteed, for all but one loan, by the
principals of the businesses financed. Included in principal outstanding at
March 31, 1997 is $5.7 million of interim financing which has been advanced
pursuant to the Small Business Administration Section 504 Loan Program (the
"SBA 504 Program"). Interest rates charged on such advances are comparable to
those customarily charged by the Company.
At March 31, 1997, the Company's loan portfolio consisted of
approximately 30% and 12% of loans to borrowers in Texas and Maryland,
respectively. No other state had a concentration of 10% or greater at March
31, 1997. The Company's loan portfolio was approximately 97% concentrated in
the lodging industry at March 31, 1997.
When originating a loan, PMC Commercial charges a commitment fee. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 91,
this non-refundable fee, less direct costs associated with the origination, is
deferred and included as a reduction of the carrying value of loans receivable.
These net deferred commitment fees are recognized as an adjustment of yield
over the life of the related loan. The Company had approximately $1.6 million
in net unamortized deferred commitment fees at March 31, 1997.
From inception through March 31, 1997, PMC Commercial experienced no
loan losses and no charge-offs. At March 31, 1997, no loan was delinquent for
a period greater than 60 days.
From December 28, 1993 (commencement of operations) through March 31,
1997, PMC Commercial has funded an aggregate principal amount (including
approximately $1.3 million of purchased loans) of approximately $124.3 million
related to 121 loans.
All loans originated by PMC Commercial presently provide for fixed
interest rates. The weighted average interest rates for loans funded during
the three months ended March 31, 1997, and the years ended December 31, 1996,
1995 and 1994 were 10.76%, 10.86%, 11.42% and 11.05%, respectively.
7
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CERTAIN ACCOUNTING CONSIDERATIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The Company follows the accounting practices prescribed by the American
Institute of Certified Public Accountants - Accounting Standards Division in
Statement of Position 75-2 "Accounting Practices of Real Estate Investment
Trusts" ("SOP 75-2"). In accordance with SOP 75-2, a loss reserve is
established based on a determination, through an evaluation of the
recoverability of individual loans, by the Company's Board of Trust Managers
when significant doubt exists as to the ultimate collectability of one or more
loans. The determination of whether significant doubt exists and whether a
loss provision is necessary for each loan requires judgment and consideration
of the facts and circumstances existing at the evaluation date. Changes to the
facts and circumstances of the borrower, the lodging industry and the economy
may require the establishment of significant loss reserves. At such time as a
determination is made that there exists significant doubt as to the ultimate
collectability of one or more loans requiring the establishment of a loss
reserve, the effect to operating results may be material. As of March 31, 1997
a $20,000 reserve has been established.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. SFAS No. 128 is designed to
improve the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of PMC Commercial's earnings per
share data to that of similar entities. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997. In the
opinion of management, the effect of this pronouncement on earnings per share
will not be significant.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure." SFAS No. 129 requires certain disclosure
about an entity's capital structure. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. In the opinion of
management, the effect of this pronouncement on the Company's financial
position or results of operations will not be significant.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
The net income of the Company during the three months ended March 31,
1997 and 1996, was $2.3 million and $1.4 million, $0.38 per share for both
periods. The Company's earnings per share during the three months ended March
31, 1997, includes the effect of the issuance of 2,335,000 Common Shares of
Beneficial Interest issued pursuant to the Offering in July 1996.
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Interest income - loans increased by $1 million (56%), from $1.8 million
during the three months ended March 31, 1996, to $2.8 million during the three
months ended March 31, 1997. This increase was primarily attributable to the
reallocation of the Company's initial investment of the proceeds from the
Private Placement in March 1996 and the Offering in July 1996 from cash and
government securities to higher-yielding loans to small businesses. The
average invested assets in loans to small businesses increased by $37.0 million
(61%), from $61.0 million during the three months ended March 31, 1996, to
$98.0 million during the three months ended March 31, 1997. The annualized
average yields on loans, including all loan fees earned, for the three months
ended March 31, 1997 and 1996 were approximately 11.5% and 12.1%,
respectively. Interest income - loans includes interest earned on loans, the
accretion of a discount on purchased loans (approximately $8,000 and $7,000
during the three months ended March 31, 1997 and 1996, respectively) and the
accretion of deferred commitment fees (approximately $85,000 and $51,000 during
the three months ended March 31, 1997 and 1996, respectively).
Interest and dividends - other investments increased by $233,000 from
$54,000 during the three months ended March 31, 1996, to $287,000 during the
three months ended March 31, 1997. This increase was due to an increase in
funds available for short-term investments resulting from the Private Placement
in March 1996 and the Offering in July 1996. The average short-term
investments of the Company increased by $13.5 million, from $8.5 million during
the three months ended March 31, 1996, to $22.0 million during the three months
ended March 31, 1997. The average yields on short-term investments during the
three months ended March 31, 1997 and 1996 were approximately 5.2% and 5.6%,
respectively.
Other income increased by $43,000 (75%), from $57,000 during the three
months ended March 31, 1996, to $100,000 during the three months ended March
31, 1997. Other income consists of: (i) amortization of construction
monitoring fees, (ii) prepayment penalties, (iii) late and other loan fees and
(iv) miscellaneous collections. The increase was partially attributable to the
collection of a prepayment fee during the three months ended March 31, 1997 of
$17,000. Additionally; (i) income recognized from other loan-related fees,
such as assumption, modification and extension fees, increased by $5,000 from
$18,000 during the three months ended March 31, 1996, to $23,000 during the
three months ended March 31, 1997, and (ii) income recognized from the
monitoring of hospitality construction projects in process increased by $22,000
from $39,000 during the three months ended March 31, 1996, to $61,000 during
the three months ended March 31, 1997.
Expenses, other than interest expense, consisted primarily of the
servicing and advisory fees paid to the Investment Manager. The operating
expenses borne by the Investment Manager include compensation to PMC
Commercial's officers (other than stock options) and the cost of office space,
equipment and other personnel required for the Company's day-to-day operations.
The expenses paid by the Company include direct transaction costs incident to
the acquisition and disposition of investments, regular legal and auditing fees
and expenses, the fees and expenses of PMC Commercial's independent trust
managers, the costs of printing and mailing proxies and reports to shareholders
and the fees and expenses of the Company's custodian and transfer agent, if
any. The Company, rather than the Investment Manager, is also required to pay
expenses associated with any litigation and other extraordinary or nonrecurring
expenses. The Investment Management Agreement was amended on July 1, 1996,
resulting in investment management fees being reduced from 2.5% to 1.67% of
invested assets and from 1.5% to 0.875% of invested assets in excess of
beneficiaries' equity. Pursuant to the amended Investment Management
Agreement, the Company incurred an
9
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aggregate of $386,000 in management fees for the three months ended March 31,
1997. Of the total management fees paid or payable to the Investment Manager
during the three months ended March 31, 1997, $55,000 has been offset against
commitment fees as a direct cost of originating loans. Investment management
fees were $356,000 for the three months ended March 31, 1996. Of the total
management fees paid or payable to the Investment Manager during the three
months ended March 31, 1996, $80,000 was offset against commitment fees as a
direct cost of originating loans. The increase in investment management fees
of $30,000 (prior to offsetting direct costs related to the origination of
loans), or 8%, is primarily due to the Average Quarterly Value of All Invested
Assets increasing by from $61.0 million during the quarter ended March 31,
1996, to $98.1 million during the quarter ended March 31, 1997 (a $37.1
million, or 61%, increase), and the Average Quarterly Value of Common Equity
Capital increasing from $48.7 million during the quarter ended March 31, 1996,
to $86.8 million during the quarter ended March 31, 1997 (a $38.1 million, or
78%, increase).
Legal and accounting fees increased by $5,000 (56%), from $9,000 during
the three months ended March 31, 1996, to $14,000 during the three months ended
March 31, 1997. This increase is attributable to an increase in corporate
legal fees during the three months ended March 31, 1997.
General and administrative expenses increased by $6,000 (24%), from
$25,000 during the three months ended March 31, 1996, to $31,000 during the
three months ended March 31, 1997. This increase is primarily attributable to
an increase in costs related to printing and shareholder servicing expenses and
the Company's revolving credit facility during the three months ended March 31,
1997.
Interest expense during the three months ended March 31, 1997 relates
primarily to interest incurred on the Private Placement completed in March 1996
(approximately $445,000) and interest incurred on borrower advances
(approximately $25,000). During the three months ended March 31, 1996,
interest expense related to interest incurred on the Company's revolving credit
facility (approximately $136,000), interest incurred on the Private Placement
(approximately $105,000) and interest incurred on borrower advances
(approximately $11,000).
As the Company is currently qualified as a real estate investment trust
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, there are no provisions in the financial statements for Federal
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The primary use of PMC Commercial's funds is to originate loans and,
from time to time, to acquire loans from governmental agencies and/or their
agents. PMC Commercial also uses funds for payment of dividends to
shareholders, management and advisory fees (in lieu of salaries and other
administrative overhead), general corporate overhead and interest and principal
payments on borrowed funds.
At March 31, 1997, the Company had $13.4 million of cash and cash
equivalents and approximately $40.5 million of loan commitments outstanding to
small business concerns in the lodging industry. The weighted average interest
rate on these loan commitments at March 31, 1997 was 10.8%. These commitments
include approximately $15.7 million of loan commitments
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outstanding on partially funded construction loans and approximately $7.0
million of loan commitments outstanding relating to SBA 504 Program loans. An
additional $10.3 million in commitments made by the Investment Manager had been
designated for PMC Commercial at March 31, 1997, with a weighted average
interest rate of 10.6%, subject to availability of funds. These commitments
are made in the ordinary course of business and, in management's opinion, are
generally on the same terms as those to existing borrowers. Commitments to
extend credit are conditioned upon compliance with the terms of the commitment
letter. Commitments have fixed expiration dates and require payment of a fee.
Since some commitments expire without the proposed loan closing, the total
committed amounts do not necessarily represent future cash requirements.
In general, to meet its liquidity requirements, including expansion of
its outstanding loan portfolio, PMC Commercial intends to use: (i) its short-
term credit facility as described below, (ii) placement of long-term
borrowings, (iii) issuance of debt securities, and/or (iv) offering of
additional equity securities, including preferred shares of beneficial interest
(the "Preferred Shares"). Pursuant to the Investment Management Agreement, if
the Company does not have available capital to fund outstanding commitments,
the Investment Manager will refer such commitments to affiliates of the Company
with respect to which the Company will receive no fees. The ability of the
Company to meet its liquidity needs will depend on its ability to borrow funds
or issue equity securities on favorable terms.
The Company has a credit facility which provides up to the lesser of $20
million or an amount equal to 50% of the value of the underlying property
collateralizing the borrowings. At March 31, 1997, the Company had no
outstanding borrowings under the credit facility and $20 million available
thereunder. The Company is charged interest on the balance outstanding under
the credit facility at the Company's election of either the prime rate of the
lender less 50 basis points or 200 basis points over the 30, 60 or 90 day
LIBOR. Additional funds will be available to the Company from the proceeds of
the dividend reinvestment plan and through SBA 504 Program loan takeouts.
Management anticipates these sources of funds will be adequate to meet its
existing obligations.
On March 12, 1996 the Company completed the Private Placement of
approximately $29.5 million of Notes, issued pursuant to a rated structured
financing, which are collateralized by the Partnership's commercial loan
portfolio. The Private Placement resulted in net proceeds to the Company of
approximately $27.3 million, of which approximately $10.3 million were used to
repay outstanding borrowings under the Company's credit facility. Net profit
on these leveraged funds is materially dependent on the spread between the rate
at which it borrowed these funds (6.72%) and the rate obtained on loan of these
funds (presently the outstanding loans collateralizing this transaction have a
weighted average coupon of approximately 11.2%).
In July 1996, PMC Commercial completed the sale of 2,335,000 Common
Shares pursuant to the Offering. The Offering resulted in net proceeds to the
Company of $34.5 million, of which approximately $547,000 were used to pay
costs in connection with the Offering. After utilization of these funds and
until such time as additional long-term financing is available, the Company
will continue to borrow funds based on a variable rate of interest (short-term
borrowings) through its existing credit facility and originate loans at a fixed
rate of interest.
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In general, if the returns on loans originated by the Company with funds
obtained from any borrowing or the issuance of any Preferred Shares fail to
cover the cost of such funds, the net cash flow on such loans will be negative.
Additionally, any increase in the interest rate earned by the Company on
investments in excess of the interest rate or dividend rate incurred on the
funds obtained from either borrowings or the issuance of Preferred Shares would
cause its net income to increase more than it would without the leverage.
Conversely, any decrease in the interest rate earned by the Company on
investments would cause net income to decline by a greater amount than it would
if the funds had not been obtained from either borrowings or the issuance of
Preferred Shares. Leverage is thus generally considered a speculative
investment technique.
Loan demand has remained high for the types of loans originated by the
Company. The Private Placement and Offering will not provide the Company with
sufficient capital to expand the outstanding portfolio at historical growth
levels. Accordingly, the Company is seeking additional sources of financing,
and it is anticipated that during the latter half of the year, the Company will
attempt to structure a financing similar to the Private Placement for proceeds
between $30 million to $40 million. There can be no assurance the Company will
be able to raise funds through this financing source. If this source is not
available, the Company will have to either (i) fully utilize its $20 million
revolving credit facility, (ii) increase its revolving credit facility, (iii)
issue senior debt and/or (iv) issue common or preferred stock. To the extent
none of these financing options are available, the Company will have to slow
the rate of increasing the outstanding loan portfolio.
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 and, in most instances, are identified
through the use of words such as "anticipates," "expects" and "should."
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
Financial Data Schedule
B. Forms 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1997.
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 Commercial Trust
Date: 05/14/97 /s/ LANCE B. ROSEMORE
---------------- ---------------------------------------
Lance B. Rosemore
President
Date: 05/14/97 /s/ BARRY N. BERLIN
---------------- ---------------------------------------
Barry N. Berlin
Chief Financial Officer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FORM 10Q OF PMC COMMERCIAL TRUST AND IS QUALIFED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 18
<SECURITIES> 13,397
<RECEIVABLES> 104,806<F1>
<ALLOWANCES> (20)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,818<F2>
<CURRENT-LIABILITIES> 8,367<F3>
<BONDS> 26,408
0
0
<COMMON> 87,667
<OTHER-SE> (624)
<TOTAL-LIABILITY-AND-EQUITY> 121,818
<SALES> 0
<TOTAL-REVENUES> 3,164
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> 2,324
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,324
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<FN>
<F1>Includes current and long-term portion of all loans receivable - before reserve
and related interest receivable.
<F2>Includes the following items not included above:
(i) Other assets, net $ 19
(ii) Deferred borrowing costs 401
(iii) Restricted investments 3,197
--------
$ 3,617
========
<F3>Includes the following:items not included above:
(i) Dividends payable $ 2,466
(ii) Other liabilities 141
(iii) Interest payable 148
(iv) Borrower advances 3,905
(v) Unearned Commitment fees 1,184
(vi) Due to affiliates 370
(vii) Unearned construction
monitoring fees 153
-------
$ 8,367
=======
</FN>
</TABLE>
