PMC Commercial Trust Announces Second Quarter Financial Results

DALLAS, Aug. 6 /PRNewswire-FirstCall/ -- PMC Commercial Trust (NYSE Amex: PCC) (www.pmctrust.com) announced second quarter and year-to-date financial results today.  

Compared to Second Quarter 2009

The comparability of our financial statements between 2010 and 2009 was impacted by (1) the consolidation of our previously off-balance sheet securitizations and (2) the accounting change (effective January 1, 2010) for sale treatment on SBA 7(a) guaranteed loan sales.  Interest income and interest expense of our previously off-balance sheet securitizations are included in our financial statements during 2010 compared to separate one-line revenue recognition during 2009 as income from retained interests.

The impact to our net income related to the change in accounting rules was to defer sale treatment on loans sold and recorded as secured borrowings on a temporary basis (loans sold for premiums) for at least 90 days and to eliminate sale treatment on loans sold and recorded as secured borrowings on a permanent basis (loans sold for excess spread) subsequent to December 31, 2009.  

Income from continuing operations for the second quarter of 2010 decreased to $1,226,000 ($0.12 per share) from $1,544,000 ($0.15 per share) during the second quarter of 2009.  Net income decreased to $1,223,000, or $0.12 per share, during the second quarter of 2010 compared to $1,564,000, or $0.15 per share, for the second quarter of 2009.  Our revenues continue to be affected by the low variable interest rate environment.

The primary causes of the reduction in net income from the second quarter of 2009 to the second quarter of 2010 were:

• A reduction in LIBOR from 1.21% during the second quarter of 2009 to 0.29% during the second quarter of 2010.  The impact to net income was approximately $225,000; and
• An increase in expenses related to loans in the process of foreclosure of $117,000. We did not have any loans in the process of foreclosure during the second quarter of 2009.

Compared to First Quarter 2010

Our income from continuing operations decreased $41,000 to $1,226,000 ($0.12 per share) during the second quarter of 2010 from $1,267,000 ($0.12 per share) during the first quarter of 2010.  Net income decreased by $55,000 to $1,223,000, or $0.12 per share, during the second quarter of 2010 compared to $1,278,000, or $0.12 per share, for the first quarter of 2010.

Management Remarks

Lance B. Rosemore, Chairman of the Board of Trust Managers, stated, "We continue to emphasize SBA 7(a) lending as our primary loan product.  The SBA program is most effective in minimizing use of capital and maximizing company profitability through the sale of the government guaranteed portion of these loans.  We have grown this program from $11.0 million of fundings in 2008 to $28.0 million last year and anticipate $30 million to $40 million of fundings in 2010.  In addition to our reported earnings, we generated significant gains of $1.9 million as of June 30, 2010 that were deferred for book purposes and recorded as gains for income tax purposes related to our secondary market loan sales.  The major factors affecting our company continue to be the economic environment, lack of liquidity and the low level of interest rates.  

"Our loan origination volume is limited based on many factors with the most significant being the inability to qualify borrowers, lower collateral values, as well as capital markets.  The economy has reduced secondary repayment sources and borrowers'/guarantors' credit.  The value and marketability of collateral has continued to decline.  Our ability to borrow has also been restricted.  Through the continuity of our underwriting standards and adherence to time tested corporate practices, we maintain a strong portfolio with watch list loans of only $15.5 million at June 30th compared to $17.6 million at year-end and problem and special mention loans of $2.3 million at June 30th compared to $3.5 million at December 31st.

"The loans receivable at quarter end totaled $238 million with over 70% being variable rate based on either LIBOR or prime.  The continued low level of variable interest rates continues to put pressure on earnings with each 1% reduction in LIBOR reducing net income approximately $1.0 million on an annual basis.

"We anticipate a slow economic recovery, at best.  As a result we will continue to emphasize 7(a) lending until liquidity becomes more available.  We are hopeful that our revolving line of credit will be extended through 2011 at levels which will facilitate the continued growth of our volume levels.  While the portfolio remains solid, we will continue to rapidly dispose of foreclosed properties to limit their drag on earnings.  We have remained consistently profitable, not an easy feat, considering the ongoing economic limitations."

Interest Rate Sensitivity

• Approximately 55% of our retained loans at June 30, 2010 were based on LIBOR.
• The base LIBOR charged to our borrowers during the second quarter of 2010 was 0.29% compared to 1.21% during the second quarter of 2009.  
• The base LIBOR for the third quarter of 2010 has been set at 0.53%.

Financial Position

• Our total assets increased to $257.4 million at June 30, 2010 compared to $228.2 million at December 31, 2009 and $225.4 million at June 30, 2009.
• Our retained loan portfolio was $239.2 million at June 30, 2010 compared to $198.2 million at December 31, 2009 and $185.5 million as of June 30, 2009.
• The increase in 2010 was primarily a result of the consolidation of $27.8 million of loans receivable from our previously off-balance sheet securitizations.
• Included in loans receivable and debt is $16.6 million relating to the guaranteed portion of SBA 7(a) loans which have been sold.
• Our serviced loan portfolio increased to $286.8 million at June 30, 2010 compared to $273.7 million at December 31, 2009.

Originations

• During the first half of 2010, we originated $22.9 million of SBA 7(a) loans compared to $7.8 million in the first half of 2009.  
• Our pipeline of outstanding loan commitments was $9.5 million at June 30, 2010 compared to $20.7 million at December 31, 2009.
• We anticipate our 2010 fundings to be between $30 million and $40 million.

Liquidity

• The amount available under the revolving credit facility is currently $30 million. The facility, which matures December 31, 2010, had $18.9 million outstanding at June 30, 2010.  
• The amount available under the revolving credit facility declines over time and is collateralized by the loans of PMC Commercial.

Dividends

• A regular quarterly dividend on our common shares of $0.16 per share was declared in March 2010 that was paid on April 12, 2010 to shareholders of record on March 31, 2010.
• A regular quarterly dividend on our common shares of $0.16 per share was declared in June 2010 that was paid on July 12, 2010 to shareholders of record on June 30, 2010.
• Since our inception in 1993, we have paid over $167.0 million in dividends or $22.84 per common share.

Real Estate Investment Trust ("REIT") Taxable Income

REIT taxable income is presented to assist investors in analyzing our performance and is a measure that is presented quarterly in our consolidated financial statements and is one of the factors utilized by our Board of Trust Managers in determining the level of dividends to be paid to our shareholders.  

The following reconciles net income to REIT taxable income (loss):

Forward Looking Statements

Certain matters discussed in this press release are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995.  These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "expects," "anticipates" or words of similar import.  Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements.  Such forward-looking statements are subject to certain risks and uncertainties, including the financial performance of the Company, real estate conditions and market valuations of its shares, which could cause actual results to differ materially from those currently anticipated.  The Company's ability to meet targeted financial and operating results, including loan originations, operating income, net income and earnings per share depends on a variety of economic, competitive, and governmental factors, including changes in real estate market conditions, changes in interest rates and the Company's ability to access capital under its credit facility or otherwise, many of which are beyond the Company's control and which are described in the company's filings with the Securities and Exchange Commission.  Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained.  Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements.  The forward-looking statements made herein are only made as of the date of this press release and the Company undertakes no obligation to publicly update such forward-looking statements to reflect any changes in expectations, subsequent events or circumstances.

SOURCE PMC Commercial Trust