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PMC Commercial Trust Reports Operating Results (10-Q)

August 07, 2009 | About:

PMC Commercial Trust (PCC) filed Quarterly Report for the period ended 2009-06-30.

PMC Commercial Trust is a real estate investment trust that originates loans to small business enterprises and owns limited servicehospitality properties. As a commercial lender they originate loans to small business enterprises primarily collateralized by first liens on real estate of the related business. Their loans are primarily to borrowers in the lodging industry but they also originate loans for commercial real estate and the service retail and manufacturing industries. PMC Commercial Trust has a market cap of $73.3 million; its shares were traded at around $6.95 with a P/E ratio of 8.2 and P/S ratio of 3.2. The dividend yield of PMC Commercial Trust stocks is 9.3%.

Highlight of Business Operations:

Our aggregate portfolio continues to have minimal realized loan losses; however, we believe that economic conditions have subjected our borrowers to financial stress. We have seen an increase in payment delinquencies, slow pays, insufficient funds payments, late fees, non-payment of real estate taxes and borrower requests for deferments of payment of principal and interest. Our recorded investment in non-accrual loans increased from $5,062,000 (2.8% of our retained loans) at December 31, 2008 to $8,236,000 (4.5% of our retained loans) at June 30, 2009. Additional changes to the facts and circumstances of the individual borrowers, the limited service hospitality industry and the economy may require the establishment of significant additional loan loss reserves and the effect on our results of operations and financial condition may be material.

During the first six months of 2009 we funded approximately $7.8 million of loans. At June 30, 2009, December 31, 2008 and June 30, 2008, our outstanding commitments to fund loans were approximately $19.3 million, $10.0 million and $13.2 million, respectively. Our pipeline has been increasing and we anticipate that our fundings during 2009 will be between $20 million and $30 million. We have been concentrating on longer-term loan originations with real estate for collateral and loan amounts between $500,000 and $2,000,000.

We had a significant amount of prepayments of our serviced loans from 2006 to 2008. The result has been a reduction in our total serviced portfolio outstanding from its peak of approximately $498 million during 2004 to approximately $270 million at June 30, 2009. Our prepayment activity slowed during the last half of 2008 and the first half of 2009 and we expect that the amount of prepayments will continue at these lower levels during the last half of 2009.

In addition to our retained portfolio of $185 million, at June 30, 2009, we service approximately $85 million of aggregate principal balance remaining on loans that were sold in structured loan sale transactions and Secondary Market Loan Sales. Since we retain a residual interest in the cash flows from these sold loans, the performance of these loans impacts our profitability and our cash available for dividend distributions. Therefore, we provide information on both our loans retained (the Retained Portfolio) and combined with sold loans that we service (the Serviced Portfolio).

We have $116.3 million of loans based on LIBOR and $27.1 million of debt based on LIBOR. On the net difference of $89.2 million, LIBOR reductions will have a negative impact on future earnings. Effective in the third quarter of 2009, we experienced a reduction in the LIBOR base rate charged on our loans (a decrease of approximately 60 basis points) which will cause a reduction in our net interest income, assuming no change in our LIBOR based loans or debt, of approximately $535,000 on an annual basis or approximately $134,000 to our third quarter 2009 net interest income. Since LIBOR has already been reduced to historically low levels, further significant negative impacts from lower LIBOR interest rates is not anticipated.

At June 30, 2009 and December 31, 2008, we had reserves of $672,000 and $480,000, respectively. Our provision for loan losses (excluding reductions of loan losses) as a percentage of our weighted average outstanding loans receivable was 0.14% and 0.02% during the six months ended June 30, 2009 and 2008, respectively. To the extent one or several of our loans experience significant operating difficulties and we are forced to liquidate the loans, future losses may be substantial.

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