Loans Receivable, net

6 Months Ended

Jun. 30, 2011

Loans Receivable, net [Abstract]

Loans Receivable, net

Note 4. Loans Receivable, net:

Loans receivable, net, consisted of the following:

	June 30,			December 31,
	2011			2010
	(In thousands)
Commercial mortgage loans (1)	$	122,751		$	124,065
Commercial mortgage loans, subject to structured notes payable		36,537			40,514
SBIC commercial mortgage loans		29,897			31,289
SBA 7(a) loans, subject to secured borrowings		26,012			20,326
SBA 7(a) loans		18,908			18,673
Total loans receivable		234,105			234,867
Adjusted by:
Deferred capitalized costs (commitment fees), net		47			(40	)
Loan loss reserves		(1,860	)		(1,609	)
Loans receivable, net	$	232,292		$	233,218

(1) At December 31, 2010, these loans were pledged to our revolving credit facility.

Commercial mortgage loans

Represents all of the loans of PMC Commercial Trust.

Commercial mortgage loans, subject to structured notes payable

Represents loans contributed to special purpose entities in exchange for a subordinated financial interest in that entity. The collateral of the structured notes payable includes these loans.

SBIC commercial mortgage loans

Loans originated by our Small Business Investment Company (“SBIC”) subsidiaries.

SBA 7(a) loans, subject to secured borrowings

Represents the government guaranteed portion of loans which were sold with the proceeds received from the sale reflected as secured borrowings — government guaranteed loans (a liability on our consolidated balance sheet). There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal.

SBA 7(a) loans

Represents (1) the non-government guaranteed retained portion of loans originated under the SBA 7(a) program and (2) the government guaranteed portion of loans that have not yet been fully funded or legally sold. The balance is net of retained loan discounts of $1.3 million at both June 30, 2011 and December 31, 2010.

Concentration Risks

We have certain concentrations of investments. Substantially all of our revenue is generated from loans collateralized by hospitality properties. At both June 30, 2011 and December 31, 2010, our loans were 94% concentrated in the hospitality industry. Any economic factors that negatively impact the hospitality industry, including recessions, depressed commercial real estate markets, travel restrictions, gasoline prices, bankruptcies or other political or geopolitical events, could have a material adverse effect on our financial condition and results of operations.

At both June 30, 2011 and December 31, 2010, 19% of our loans were collateralized by properties in Texas. No other state had a concentration of 10% or greater of our loans receivable at June 30, 2011. A decline in economic conditions in any state in which we have a concentration of investments could have a material adverse effect on our financial condition and results of operations.

We have not loaned more than 10% of our assets to any single borrower; however, we have an affiliated group of obligors representing greater than 5% of our loans receivable (approximately 6%) at both June 30, 2011 and December 31, 2010. Any decline in the financial status of this group could have a material adverse effect on our financial condition and results of operations.

Aging

The following tables represent an aging of our loans receivable. These tables do not include our SBA 7(a) loans receivable, subject to secured borrowings since the SBA has guaranteed payment of the principal.

June 30, 2011
					Commercial
					Mortgage				SBA 7(a)
Category	Totals				Loans				Loans
	(Dollars in thousands)
Current	$	204,955	98.5	%	$	186,340	98.5	%	$	18,615	98.5	%
Between 30 and 59 days delinquent		18	—			—	—			18	—
Between 60 and 89 days delinquent		774	0.4	%		774	0.4	%		—	—
Over 89 days delinquent (1)		2,346	1.1	%		2,071	1.1	%		275	1.5	%
	$	208,093	100.0	%	$	189,185	100.0	%	$	18,908	100.0	%

(1) Includes $1.5 million of loans on which the borrowers have filed for Chapter 11 Bankruptcy. We are classified as a secured creditor in the bankruptcy proceedings. In addition, the collateral underlying $0.7 million of loans included in the over 89 days delinquent category was in the foreclosure process.

December 31, 2010
					Commercial
					Mortgage				SBA 7(a)
Category	Totals				Loans				Loans
	(Dollars in thousands)
Current (1)	$	196,539	91.6	%	$	178,592	91.2	%	$	17,947	96.1	%
Between 30 and 59 days delinquent		4,877	2.3	%		4,664	2.4	%		213	1.1	%
Between 60 and 89 days delinquent		5,576	2.6	%		5,253	2.7	%		323	1.7	%
Over 89 days delinquent (2)		7,549	3.5	%		7,359	3.8	%		190	1.0	%
	$	214,541	100.0	%	$	195,868	100.0	%	$	18,673	100.0	%

(1)	Includes $9.0 million of loans which are current under agreements which provide for interest only payments during a short period of time in exchange for additional collateral. Of this, $7.2 million relates to an affiliated group of obligors described above.
(2)	Includes $6.3 million of loans on which the borrowers have filed for Chapter 11 Bankruptcy. We are classified as a secured creditor in the bankruptcy proceedings. In addition, the collateral underlying $1.1 million of loans included in the over 89 days delinquent category was in the foreclosure process.

Loan Loss Reserves

We have a quarterly review process to identify and evaluate potential exposure to loan losses. Loans that require specific identification review are identified based on one or more negative characteristics including, but not limited to, non-payment or lack of timely payment of interest and/or principal, non-payment or lack of timely payment of property taxes for an extended period of time, insurance defaults and/or franchise defaults. The specific identification evaluation begins with an estimation of underlying collateral values using appraisals, broker price opinions, tax assessed value and/or revenue analysis. Management uses appraisals as tools in conjunction with other determinants of collateral value to estimate collateral values, not as the sole determinant of value due to the current economic environment. The property valuation takes into consideration current information on property values in general and value changes in commercial real estate and/or hospitality properties. The probability of liquidation is then determined. These probability determinations include macroeconomic factors, the location of the property and economic environment where the property is located, industry specific factors relating primarily to the hospitality industry, our historical experience with similar borrowers and/or individual borrower or collateral characteristics, and in certain circumstances, the strength of the guarantors. The liquidation probability is then applied to the specifically identified loss exposure to establish the specifically identified reserve for that loan.

Management closely monitors our loans which require evaluation for loan loss reserves based on specific identification which are classified into three categories: Doubtful, Substandard and Other Assets Especially Mentioned (“OAEM”) (together “Specific Identification Loans”). Loans classified as Doubtful are generally loans which are not complying with their contractual terms, the collection of the balance of the principal is considered impaired and liquidation of the collateral securing the loan is probable. These loans are typically placed on non-accrual status and are generally in the foreclosure process. Loans classified as Substandard are generally those loans that are either not complying or had previously not complied with their contractual terms and have other credit weaknesses which may make payment default or principal exposure likely but not yet certain. Loans classified as OAEM are generally loans for which the credit quality of the borrowers has temporarily deteriorated. Typically these borrowers, whose loans are classified as OAEM, are current on their payments; however, they may be delinquent on their property taxes, insurance, or franchise fees or may be under agreements which provided for interest only payments during a short period of time. In addition, included in OAEM are loans for which the borrowers have filed for Chapter 11 Bankruptcy and we are classified as a secured creditor in the bankruptcy proceedings. Until bankruptcy plans are confirmed, the loans are typically delinquent.

Management has classified our loans receivable (excluding our SBA 7(a) loans receivable, subject to secured borrowings since the SBA has guaranteed payment of the principal) as follows (balances represent our investment in the loans prior to loan loss reserves and deferred commitment fees):

	June 30, 2011
						Commercial
						Mortgage					SBA 7(a)
	Totals		%			Loans		%			Loans		%
	(Dollars in thousands)
Satisfactory	$	178,190		85.6	%	$	160,110		84.6	%	$	18,080		95.6	%
OAEM		21,992		10.6	%		21,981		11.6	%		11		0.1	%
Substandard		5,384		2.6	%		5,023		2.7	%		361		1.9	%
Doubtful		2,527		1.2	%		2,071		1.1	%		456		2.4	%
	$	208,093		100.0	%	$	189,185		100.0	%	$	18,908		100.0	%

	December 31, 2010
						Commercial
						Mortgage					SBA 7(a)
	Totals		%			Loans		%			Loans		%
	(Dollars in thousands)
Satisfactory	$	187,630		87.5	%	$	169,880		86.7	%	$	17,750		95.1	%
OAEM		16,886		7.9	%		16,872		8.6	%		14		0.1	%
Substandard		9,113		4.2	%		8,469		4.3	%		644		3.4	%
Doubtful		912		0.4	%		647		0.3	%		265		1.4	%
	$	214,541		100.0	%	$	195,868		100.0	%	$	18,673		100.0	%

At June 30, 2011 and December 31, 2010, we had loan loss reserves of $1,860,000 and $1,609,000, respectively, including general loan loss reserves of $1,270,000 and $1,100,000, respectively. Our total loan loss reserves and general loan loss reserves as a percentage of our outstanding portfolio (excluding SBA 7(a) loans receivable, subject to secured borrowings) were 89 basis points and 61 basis points, respectively, at June 30, 2011 and 54 basis points and 38 basis points, respectively, at June 30, 2010. Our provision for loan losses (excluding reductions of loan losses) as a percentage of our weighted average outstanding loans receivable (excluding SBA 7(a) loans receivable, subject to secured borrowings) was 0.25% and 0.14% during the six months ended June 30, 2011 and 2010, 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.

The activity in our loan loss reserves was as follows:

	Six Months Ended June 30,
	2011
				Commercial
				Mortgage			SBA 7(a)
	Total			Loans			Loans			2010
	(In thousands)
Balance, beginning of year	$	1,609		$	1,303		$	306		$	1,257
Provision for loan losses		520			332			188			306
Reduction of loan losses		(141	)		(118	)		(23	)		(404	)
Consolidation of the 2000 Joint Venture and the 1998 Partnership reserves		—			—			—			184
Principal balances written-off		(128	)		—			(128	)		(143	)
Balance, end of period	$	1,860		$	1,517		$	343		$	1,200

Information on those loans considered to be impaired loans (loans for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan) was as follows:

	June 30, 2011						December 31, 2010
			Commercial						Commercial
			Mortgage		SBA 7(a)				Mortgage		SBA 7(a)
	Total		Loans		Loans		Total		Loans		Loans
	(In thousands)
Impaired loans requiring reserves	$	1,704	$	1,411	$	293	$	687	$	419	$	268
Impaired loans expected to be fully recoverable		817		654		163		228		228		—
Total impaired loans	$	2,521	$	2,065	$	456	$	915	$	647	$	268

	Three Months Ended June 30,
	2011
			Commercial
			Mortgage		SBA 7(a)
	Total		Loans		Loans		2010
	(In thousands)
Average impaired loans	$	2,646	$	2,061	$	585	$	3,915
Interest income on impaired loans	$	2	$	—	$	2	$	57

	Six Months Ended June 30,
	2011
			Commercial
			Mortgage		SBA 7(a)
	Total		Loans		Loans		2010
	(In thousands)
Average impaired loans	$	2,548	$	2,059	$	489	$	4,190
Interest income on impaired loans	$	4	$	—	$	4	$	71

Our recorded investment in Non-Accrual Loans at June 30, 2011 of $4,585,000 was comprised of $293,000 of SBA 7(a) loans and $4,292,000 of commercial mortgage loans. Our recorded investment in Non-Accrual Loans at December 31, 2010 of $12,275,000 was comprised of $519,000 of SBA 7(a) loans and $11,756,000 of commercial mortgage loans. Our Non-Accrual Loans were primarily in bankruptcy proceedings or the collateral securing our Non-Accrual Loans was in the process of foreclosure at June 30, 2011 and December 31, 2010. We did not have any loans receivable past due 90 days or more which were accruing interest at June 30, 2011 or December 31, 2010.

Additional Credit Quality Indicator

We consider loan origination dates to be a credit quality indicator of our portfolio. Loans originated from 1991 to 1999 are heavily seasoned; thus typically representing a smaller risk in terms of loss upon liquidation due to paydowns of principal. For loans originated during 2005 to 2007, the businesses collateralizing these loans (within a short period of time following closing of the loans) were subject to extreme conditions including a recession and resulting decrease in property values and performance. While we believe that industry performance is improving, it has not yet reached pre-recession levels. The majority of our loans receivable which were over 89 days delinquent at June 30, 2011 and December 31, 2010 were originated from 2005 to 2007.

The years of origination for our loans receivable outstanding (excluding our SBA 7(a) loans receivable, subject to secured borrowings since the SBA has guaranteed payment of the principal) were as follows:

June 30, 2011
					Commercial
					Mortgage				SBA 7(a)
Year of Origination	Totals				Loans				Loans
	(Dollars in thousands)
1991 to 1999	$	33,120	15.9	%	$	31,833	16.8	%	$	1,287	6.8	%
2000 to 2004		54,114	26.0	%		51,544	27.2	%		2,570	13.6	%
2005 to 2007		77,029	37.0	%		75,734	40.0	%		1,295	6.8	%
2008 to 2011		43,830	21.1	%		30,074	15.9	%		13,756	72.8	%
	$	208,093	100.0	%	$	189,185	100.0	%	$	18,908	100.0	%

December 31, 2010
					Commercial
					Mortgage				SBA 7(a)
Year of Origination	Totals				Loans				Loans
	(Dollars in thousands)
1991 to 1999	$	36,405	17.0	%	$	35,057	17.9	%	$	1,348	7.2	%
2000 to 2004		56,497	26.3	%		53,739	27.4	%		2,758	14.8	%
2005 to 2007		79,118	36.9	%		77,773	39.7	%		1,345	7.2	%
2008 to 2010		42,521	19.8	%		29,299	15.0	%		13,222	70.8	%
	$	214,541	100.0	%	$	195,868	100.0	%	$	18,673	100.0	%