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 June 30, 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 0-22148
PMC COMMERCIAL TRUST
(Exact name of registrant as specified in its charter)
TEXAS 75-6446078
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
17290 Preston Road, 3rd Floor, (214) 380-0044
Dallas, TX 75252 (Registrant's telephone number)
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports 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 August 1, 1996, Registrant had outstanding 5,935,461 Common Shares of
Beneficial Interest, par value $.01 per share.
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PMC COMMERCIAL TRUST
INDEX
PART I. Financial Information PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 2
Consolidated Statements of Income -
Six Months Ended June 30, 1996 and 1995 3
Three Months Ended June 30, 1996
and 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
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PART I
Financial Information
ITEM 1.
Financial Statements
4
PMC COMMERCIAL TRUST
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
------------ ------------
ASSETS (Unaudited)
Investments:
Loans receivable, net .......................................... $ 70,645,954 $ 59,129,536
Cash equivalents ............................................... 10,882,786 173,679
Restricted investments ......................................... 2,741,760 -
------------ ------------
Total investments ................................................ 84,270,500 59,303,215
------------ ------------
Other assets:
Cash ........................................................... 2,664 33,504
Interest receivable ............................................ 475,095 410,073
Deferred borrowing costs ....................................... 420,683 -
Deferred stock offering costs .................................. 310,547 -
Other assets, net .............................................. 82,831 50,483
------------ ------------
Total other assets ............................................... 1,291,820 494,060
------------ ------------
Total assets ..................................................... $ 85,562,320 $ 59,797,275
============ ============
LIABILITIES AND BENEFICIARIES' EQUITY
Liabilities:
Notes payable .................................................. $ 29,667,426 $ 7,920,000
Dividends payable .............................................. 1,367,068 1,518,896
Accounts payable ............................................... 250,586 14,175
Interest payable ............................................... 164,087 56,267
Borrower advances .............................................. 2,781,265 579,133
Unearned commitment fees ....................................... 897,097 599,978
Due to affiliates .............................................. 439,258 844,786
Unearned construction monitoring fees .......................... 129,326 81,008
------------ ------------
Total liabilities ................................................ 35,696,113 11,614,243
------------ ------------
Beneficiaries' equity:
Common shares of beneficial interest; authorized
100,000,000 shares of $0.01 par value; 3,597,548 and
3,491,716 shares issued and outstanding at June 30, 1996
and December 31, 1995, respectively ....................... 35,975 34,917
Additional paid-in capital ..................................... 50,026,870 48,326,337
Cumulative net income .......................................... 10,770,135 8,111,318
Cumulative dividends ........................................... (10,966,773) (8,289,540)
------------ ------------
Total beneficiaries' equity ...................................... 49,866,207 48,183,032
------------ ------------
Total liabilities and beneficiaries' equity ...................... $ 85,562,320 $ 59,797,275
============ ============
Net asset value per share ........................................ $ 13.86 $ 13.80
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
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PMC COMMERCIAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended June 30,
--------------------------
1996 1995
---------- ----------
Revenues:
Interest income - loans ...................... $3,754,968 $2,383,778
Interest and dividends - other investments ... 258,768 316,840
Other income ................................. 118,822 135,598
---------- ----------
Total revenues ................................. 4,132,558 2,836,216
---------- ----------
Expenses:
Advisory and servicing fees, net ............. 606,563 374,107
Legal and accounting fees .................... 25,637 47,490
General and administrative ................... 56,560 66,921
Interest ..................................... 784,981 34,292
---------- ----------
Total expenses ................................. 1,473,741 522,810
---------- ----------
Net income ..................................... $2,658,817 $2,313,406
========== ==========
Net income per share ........................... $ 0.75 $ 0.67
========== ==========
Weighted average shares outstanding ............ 3,547,842 3,444,842
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
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PMC COMMERCIAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
--------------------------
1996 1995
---------- ----------
Revenues:
Interest income - loans ...................... $1,959,365 $1,276,849
Interest and dividends - other investments ... 204,420 86,223
Other income ................................. 61,987 51,596
---------- ----------
Total revenues ................................. 2,225,772 1,414,668
---------- ----------
Expenses:
Advisory and servicing fees, net ............. 330,471 213,377
Legal and accounting fees .................... 16,447 21,347
General and administrative ................... 31,295 33,805
Interest ..................................... 533,212 17,857
---------- ----------
Total expenses ................................. 911,425 286,386
---------- ----------
Net income ..................................... $1,314,347 $1,128,282
========== ==========
Net income per share ........................... $ 0.37 $ 0.33
========== ==========
Weighted average shares outstanding ............ 3,576,072 3,445,150
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
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PMC COMMERCIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
------------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 2,658,817 $ 2,313,406
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of:
Discount on purchased loans .................. (14,343) (12,872)
Deferred commitment fees ..................... (257,868) (268,338)
Construction monitoring fees ................. (70,425) (79,838)
Amortization of organization and borrowing costs 34,069 4,020
Commitment fees collected ........................ 589,800 390,914
Construction monitoring fees collected, net ...... 118,743 (10,070)
Changes in operating assets and liabilities:
Accrued interest receivable .................. (65,022) (34,149)
Other assets ................................. (36,368) -
Deferred borrowing costs ..................... (450,732) -
Interest payable ............................. 107,820 -
Borrower advances ............................ 2,202,132 (133,213)
Due to affiliates ............................ (405,528) 198,002
Accounts payable ............................. 236,411 8,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............. 4,647,506 2,375,862
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded ......................................... (13,631,168) (20,438,056)
Principal collected .................................. 2,094,280 3,884,436
Investment in restricted cash ........................ (2,741,760) -
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .................. (14,278,648) (16,553,620)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares ............. 1,626,667 9,755
Proceeds from issuance of notes payable ............. 39,140,770 -
Payment of dividends ................................ (2,754,137) (2,066,718)
Payment of stock offering costs ..................... (310,547) -
Payment of principal on notes payable ............... (17,393,344) -
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .... 20,309,409 (2,056,963)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 10,678,267 (16,234,721)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 207,183 18,850,103
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............... $ 10,885,450 $ 2,615,382
============ ============
SUPPLEMENTAL DISCLOSURES:
Dividends reinvested ................................ $ 74,924 $ 6,614
============ ============
Dividends declared, not paid ........................ $ 1,367,068 $ 1,085,270
============ ============
Interest paid ....................................... $ 684,692 $ 8,952
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
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PMC COMMERCIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of PMC Commercial
Trust ("PMC Commercial") and its subsidiaries (collectively the "Company") as of
and for the three and six months ended June 30, 1996 and 1995 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 June 30, 1996, the results of operations for the three and
six months ended June 30, 1996 and 1995, and the cash flows for the six months
ended June 30, 1996 and 1995. 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 1995 Annual Report on
Form 10-K.
The results for the six months ended June 30, 1996 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 and six month periods ended June 30, 1996, PMC
Commercial declared dividends to its shareholders of beneficial interest of
$0.38 and $0.75 per share, respectively.
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
$750,000 for the six months ended June 30, 1996. The servicing and advisory fees
are based upon the average quarterly value of all assets and the average
quarterly value of all invested assets during the quarter. Of the amount of
servicing and advisory fees paid or payable to the Investment Manager as of June
30, 1996, $143,000 has been offset against commitment fees as a direct cost of
originating loans.
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PMC COMMERCIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. NOTES PAYABLE
On March 12, 1996, the Partnership, a special purpose affiliate of PMC
Commercial, completed a 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 ($39.4 million remained outstanding
at June 30, 1996). In connection with this private placement, the Notes were
given a rating of "AA" by Duff and Phelps Credit Rating Co. The loans were
originated or purchased by PMC Commercial in accordance with its lending
strategy and underwriting criteria. The Partnership has the exclusive obligation
for the repayment of the Notes, and the holders of the Notes have no recourse to
PMC Commercial or its assets in the event of nonpayment other than the loans
contributed to the Partnership and the restricted investments. The net proceeds
from this issuance of the Notes (approximately $27.1 million after giving effect
to costs of $500,000 and a $1.9 million deposit held by the trustee as
collateral) were distributed to PMC Commercial in accordance with its interest
in the Partnership. PMC Commercial used such proceeds to pay down outstanding
borrowings under its credit facility and intends to make additional loans in
accordance with its lending criteria. At June 30, 1996, the Company had
approximately $29.4 million of outstanding borrowings pursuant to the Notes.
During 1995, PMC Commercial entered into an arrangement for a revolving
credit facility to provide funds to originate loans collateralized by commercial
real estate. This credit facility 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 June 30, 1996, the Company had $300,000 outstanding under the
credit facility and additional availability of $19.7 million. PMC Commercial is
charged interest on the balance outstanding under the credit facility, at its
option, at either the prime rate of the lender less 50 basis points or 200 basis
points over the 30, 60, or 90 days LIBOR.
NOTE 6. SUBSEQUENT EVENT
On July 2, 1996, PMC Commercial completed the sale of 2 million of its
common shares of beneficial interest ("Common Shares") in a public offering and
60,000 Common Shares in a directed public offering (collectively, "the
Offering"). The shares were sold at $15.625 per share, resulting in net proceeds
of $29.5 million. In July 1996, PMC Commercial sold an additional 275,000 Common
Shares under the exercise of the over-allotment option by the underwriters of
the Offering, for additional net proceeds of approximately $4 million. The
proceeds of the offering will be used to make additional loans in accordance
with the Company's underwriting criteria. As of June 30, 1996, the Company had
incurred approximately $311,000 in costs in connection with the offering which
were deferred at June 30, 1996, and will be offset against additional paid-in
capital during the third quarter of 1996.
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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 incorporated in June 1993 and had no operations
prior to completion of its initial public offering (the "IPO") on December 28,
1993. The net proceeds to the Company from the IPO were $47.7 million, including
over-allotment options.
During the three and six months ended June 30, 1996, the Company funded
$8.8 million and $13.6 million, respectively, of loans, all to businesses
operating in the lodging industry. During the years ended December 31, 1995 and
1994, the Company originated and funded or purchased loans with a face value of
$31.7 million and $35.2 million, respectively. As of June 30, 1996, the total
portfolio outstanding was $71.8 million ($70.6 million after reductions for
loans purchased at a discount and deferred commitment fees) with a weighted
average contractual interest rate of approximately 11.1%. 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. Loans are
collateralized primarily by first liens on real estate and are guaranteed, for
all but one loan, by the principals of the businesses financed. Included in
outstanding loans at June 30, 1996 are $2.2 million which have 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
which are customarily charged by the Company.
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
reporting 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 loan loss reserve is
established based on a determination, through an evaluation of the
recoverability of individual loans, by the Board of Trust Managers of PMC
Commercial when significant doubt exists as to the ultimate realization of the
loan. To date, no loan loss reserves have been established. The determination of
whether significant doubt exists and whether a loan loss provision is necessary
for each loan requires judgment and considers 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 loan loss reserves. At such time as a determination is made that
there exists significant doubt as to the ultimate realization of a loan, the
effect to operating results may be material.
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RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
The net income of the Company for the six months ended June 30, 1996
and 1995, was $2.7 million and $2.3 million, $0.75 and $0.67 per share,
respectively.
Interest income - loans increased by $1.4 million (58%), from $2.4
million for the six months ended June 30, 1995, to $3.8 million for the six
months ended June 30, 1996. This increase was primarily attributable to: (i) the
distribution of the Company's initial investment of the proceeds of the IPO from
cash and U.S. Government securities to higher-yielding loans to small businesses
and (ii) portfolio growth from the proceeds of borrowing arrangements. The
average invested assets in loans to small businesses increased by $23.5 million
(58%), from $40.3 million during the six months ended June 30, 1995, to $63.8
million during the six months ended June 30, 1996. The annualized average yields
on loans for the six months ended June 30, 1995 and 1996 were approximately
12.1% and 11.9%, respectively. Interest income - loans includes interest earned
on loans, the accretion of discount on purchased loans (approximately $14,300
and $12,900 during the six months ended June 30, 1996 and 1995, respectively)
and the accretion of deferred commitment fees (approximately $115,000 and
$111,000 during the six months ended June 30, 1996 and 1995, respectively).
Interest and dividends - other investments decreased by $58,000 (18%),
from $317,000 during the six months ended June 30, 1995, to $259,000 during the
six months ended June 30, 1996. This decrease was due to the reduction in funds
available for short-term investments. The proceeds from the IPO were initially
invested in government securities and money market funds until small business
loans were identified and funded. The Company completed a structured financing
on March 12, 1996, which resulted in net proceeds of $27.1 million, which were
initially invested in short-term investments and are being used to make loans in
accordance with the Company's underwriting criteria (see Note 5 to the
consolidated financial statements contained herein). The average short-term
investments of the Company decreased by $1.7 million (15%), from $11.0 million
during the six months ended June 30, 1995, to $9.3 million during the six months
ended June 30, 1996. The average yields on short-term investments during the six
months ended June 30, 1996 and 1995 were approximately 5.6% and 5.8%,
respectively.
Other income decreased by $17,000 (13%), from $136,000 during the six
months ended June 30, 1995, to $119,000 during the six months ended June 30,
1996. Other income consists of: (i) amortization of construction monitoring
fees, (ii) prepayment penalties, (iii) late fees and other loan fees and (iv)
other miscellaneous collections. The decrease was primarily due to the fee
collected on a prepaid loan during the six months ended June 30, 1995 of
$51,000. Additionally, the income recognized from the monitoring of construction
hotel/motel projects in process decreased by $10,000, from $80,000 during the
six months ended June 30, 1995, to $70,000 during the six months ended June 30,
1996. The decrease was offset by $46,000 of income recognized during the six
months ended June 30, 1996 from other loan-related fees. Income recognized
during the six months ended June 30, 1995 from other loan-related fees was
$5,000.
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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, corporate 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 PMC Commercial's custodian and transfer agent, if
any. The Company, rather than the Investment Manager, will also be required to
pay expenses associated with any litigation and other extraordinary or
nonrecurring expenses. Pursuant to the Investment Management Agreement, the
Company incurred an aggregate of $750,000 in management fees for the six months
ended June 30, 1996. Of the total management fees paid or payable to the
Investment Manager during the six months ended June 30, 1996, $143,000 has been
offset against commitment fees as a direct cost of originating loans. Investment
management fees were $532,000 for the six months ended June 30, 1995. Of the
total management fees paid or payable to the Investment Manager during the six
months ended June 30, 1995, $158,500 was offset against commitment fees as a
direct cost of originating loans. The increase in investment management fees of
$218,000 (prior to offsetting direct costs of originating loans), or 41%, is
primarily due to the average invested assets increasing from $40.3 million
during the six months ended June 30, 1995 to $63.8 million during the six months
ended June 30, 1996 (a $23.5 million increase, or 58%) and average total assets
increasing from $51.6 million during the six months ended June 30, 1995 to $74.0
million during the six months ended June 30, 1996 ( a $22.4 million increase, or
43%).
Legal and accounting fees decreased by $21,000 (45%), from $47,000
during the six months ended June 30, 1995, to $26,000 during the six months
ended June 30, 1996. This decrease is attributable to billing of accounting and
corporate legal fees during the six months ended June 30, 1995.
General and administrative expenses decreased by $10,000 (15%), from
$67,000 during the six months ended June 30, 1995, to $57,000 during the six
months ended June 30, 1996. This decrease is primarily attributable to the cost
of printing and mailing the Company's dividend reinvestment plan and the cost of
listing of the Company's common shares of beneficial interest on the American
Stock Exchange during the six months ended June 30, 1995.
Interest expense of $785,000 relates to interest on the Company's
revolving credit facility (approximately $138,000), interest on the structured
financing (approximately $628,000) and interest incurred on borrower advances
(approximately $19,000) during the six months ended June 30, 1996. The
obligation to pay interest on borrower advances is included in borrower advances
on the accompanying balance sheets. The Company had no outstanding debt during
the six months ended June 30, 1995. Interest expense on borrower advances was
$34,000 during the six months ended June 30, 1995.
As the Company is currently qualified as a Real Estate Investment Trust
("REIT") under the applicable provisions of the Internal Revenue Code of 1986,
as amended ("the Code"), there are no provisions in the financial statements for
Federal income taxes.
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THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
The net income of the Company for the three months ended June 30, 1996
and 1995, was $1.3 million and $1.1 million, $0.37 and $0.33 per share,
respectively.
Interest income - loans increased by $700,000 (54%), from $1.3 million
for the three months ended June 30, 1995, to $2.0 million for the three months
ended June 30, 1996. This increase was primarily attributable to: (i) the
reallocation of the Company's initial investment of the proceeds of the IPO in
cash and U.S. Government securities to higher-yielding loans to small businesses
and (ii) portfolio growth from the proceeds of borrowing arrangements. The
average invested assets in loans to small businesses increased by $21.5 million
(48%), from $45.1 million during the three months ended June 30, 1995, to $66.6
million during the three months ended June 30, 1996. The annualized average
yields on loans for the three months ended June 30, 1996 and 1995 were
approximately 11.9% and 11.5%, respectively. Interest income - loans includes
interest earned on loans, the accretion of discount on purchased loans
(approximately $7,300 and $6,900 during the three months ended June 30, 1996 and
1995, respectively) and the accretion of deferred commitment fees (approximately
$64,000 and $55,000 during the three months ended June 30, 1996 and 1995,
respectively).
Interest and dividends - other investments increased by $118,000
(137%), from $86,000 during the three months ended June 30, 1995, to $204,000
during the three months ended June 30, 1996. This increase was due to an
increase in funds available for short-term investments which resulted from the
completion of the structured financing on March 12, 1996 (see Note 5 to the
consolidated financial statements contained herein). The average short-term
investments of the Company increased by $9.9 million (157%), from $6.3 million
during the three months ended June 30, 1995, to $16.2 million during the three
months ended June 30, 1996. The average yields on short-term investments during
the three months ended June 30, 1996 and 1995 were approximately 5.0% and 5.5%,
respectively.
Other income increased by $10,000 (19%), from $52,000 during the three
months ended June 30, 1995, to $62,000 during the three months ended June 30,
1996. Other income consists of: (i) amortization of construction monitoring
fees, (ii) prepayment penalties, (iii) late fees and other loan fees and (iv)
other miscellaneous collections. The increase was primarily due to the
collection of loan-related fees, which increased by $23,000 from $2,000 during
the three months ended June 30, 1995 to $25,000 during the three months ended
June 30, 1996. The increase was offset by income recognized from the monitoring
of construction hotel/motel projects in process which decreased by $17,000 from
$48,000 during the three months ended June 30, 1995, to $31,000 during the three
months ended June 30, 1996.
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, will also be required to pay
expenses associated with
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any litigation and other extraordinary or nonrecurring expenses. Pursuant to the
Investment Management Agreement, the Company incurred an aggregate of $394,000
in management fees for the three months ended June 30, 1996. Of the total
management fees paid or payable to the Investment Manager during the three
months ended June 30, 1996, $63,000 has been offset against commitment fees as a
direct cost of originating loans. Investment management fees were $291,000 for
the three months ended June 30, 1995. Of the total management fees paid or
payable to the Investment Manager during the three months ended June 30, 1995,
$78,000 was offset against commitment fees as a direct cost of originating
loans. The increase in investment management fees of $103,000 (prior to
offsetting direct costs of originating loans), or 35%, is primarily due to the
average invested assets increasing from $45.1 million during the three months
ended June 30, 1995 to $66.6 million during the three months ended June 30, 1996
(a $21.5 million increase, or 48%) and average total assets increasing from
$51.8 million during the three months ended June 30, 1995 to $84.2 million
during the three months ended June 30, 1996 (a $32.4 million increase, or 63%).
Legal and accounting fees decreased by $5,000 (24%), from $21,000
during the three months ended June 30, 1995, to $16,000 during the three months
ended June 30, 1996. This decrease is attributable to billing of accounting and
corporate legal fees during the three months ended June 30, 1995.
General and administrative expenses of $31,000 for the three months
ended June 30, 1996 remained consistent with general and administrative expenses
of $34,000 for the three months ended June 30, 1995. General and administrative
expenses for the three months ended June 30, 1996 and 1995 consisted primarily
of shareholder servicing fees.
Interest expense of $533,000 relates to interest on the structured
financing (approximately $523,000), interest on the Company's revolving credit
facility (approximately $2,000), and interest incurred on borrower advances
during the three months ended June 30, 1996 (approximately $8,000). The
obligation to pay interest on borrowers advances is included in borrower
advances on the accompanying balance sheet. The Company had no outstanding debt
during the three months ended June 30, 1995. Interest on borrower advances was
$18,000 during the three months ended June 30, 1995.
As the Company is currently qualified as a REIT under the applicable
provisions of the Code, there are no provisions in the financial statements for
Federal income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The primary use of the Company's funds is to originate loans and, from
time to time, to acquire loans from governmental agencies and/or their agents.
The Company 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.
In general, to meet its liquidity requirements, including expansion of
its outstanding loan portfolio, the Company may use: (i) its short-term credit
facility as described below, (ii) placement of long-term borrowings, (iii)
issuance of debt securities and/or (iv) offerings of additional equity
securities, including preferred shares of beneficial interest (the "Preferred
Shares"). Pursuant to the
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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. 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.
By December 31, 1995, the Company had invested all the proceeds from
its IPO in loans to small businesses. During 1995, the Company completed an
arrangement for a revolving credit facility providing the Company with funds to
originate loans collateralized by commercial real estate. This credit facility
provides the Company up to the lesser of $20 million or an amount equal to 50%
of the value of the underlying property collateralizing the borrowings. At June
30, 1996, the Company had $300,000 outstanding borrowings under the credit
facility and an additional availability of $19.7 million. The Company is charged
interest on the balance outstanding, if any, 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.
During March 1996, the Company, through a limited partnership
structure, completed a private placement of approximately $29.5 million of notes
issued pursuant to a rated structured financing collateralized by a portion of
the Company's commercial loan portfolio (the "Private Placement"). The financing
resulted in net proceeds to the Company of approximately $27.1 million, of which
approximately $10.3 million were used to repay outstanding borrowings under the
Company's credit facility.
At June 30, 1996, the Company had $10.9 million of cash and cash
equivalents. In July 1996, the Company received $33.5 million from the issuance
of its Common Shares of Beneficial Interest (the "Common Shares") as described
below. Additional funds will be available to the Company from the proceeds of
the dividend reinvestment plan or amounts pursuant to the SBA 504 loan program.
At June 30, 1996, the Company had approximately $34.1 million in outstanding
commitments to originate loans. To the extent the Company has available funds,
an additional $14.6 million in commitments made by the Investment Manager were
designated for the Company at June 30, 1996. It is anticipated that these loans
will be funded by the Company. Such commitments were made in the ordinary course
of the Company's business and 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.
On April 23, 1996, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission to register for sale up to
2,360,000 of Common Shares. The registration statement was declared effective on
June 26, 1996, and on July 2, 1996, the Company completed the sale of 2 million
Common Shares in a public offering and 60,000 Common Shares in a directed public
offering (collectively, "the Offering"). The shares were sold at $15.625 per
share, resulting in net proceeds of $29.5 million. In July 1996, PMC Commercial
sold an additional 275,000 Common Shares under the exercise of the
over-allotment option by the underwriters of the Offering, for additional net
proceeds of approximately $4 million.
Loan demand has remained strong. The Private Placement and the Offering
has provided the Company with sufficient funds to expand the outstanding
portfolio consistent with historical growth levels. 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 by
utilizing
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its revolving credit facility, and originating loans with a fixed-rate of
interest. Net income on these leveraged funds will be materially dependent on
the spread between the rate at which it borrows funds and the rate at which it
loans these funds.
Management anticipates that (i) available short-term investments, (ii)
availability under the revolving credit facility and (iii) proceeds from the
dividend reinvestment plan and the SBA 504 loan program, will be adequate to
meet its existing obligations.
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 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.
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.
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PART II
Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders, the following
members were elected to the Board of Trust Managers:
Andrew S. Rosemore
Lance B. Rosemore
Irving Munn
Roy H. Greenberg
Nathan Cohen
Martha Greenberg
Ira Silver
The following proposals were approved at the Company's Annual Meeting:
Abstentions
Affirmation Negative and Broker
Votes Votes Non-Votes
----- ----- ---------
1. To increase the maximum number of the
Company's Common Shares of beneficial
interest available for issuance under the
PMC Commercial Trust Employee Share
Option Plan and the PMC Commercial
Trust 1993 Trust Manager Share Option
Plan 2,860,585 212,085 145,018
2. To ratify the appointment of Coopers &
Lybrand L.L.P. as the independent public
accountants of the Company 3,173,213 6,974 37,501
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Forms 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
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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: 8/14/96 \s\ Lance B. Rosemore
--------------- ------------------------------------
Lance B. Rosemore
President
Date: 8/14/96 \s\ Barry N. Berlin
--------------- ------------------------------------
Barry N. Berlin
Chief Financial Officer
(Principal Accounting Officer)
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Exhibit Index
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule