Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note 10. Income Taxes:

PMC Commercial has elected to be taxed as a REIT under the Code. To qualify as a REIT, PMC Commercial must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our taxable income to our shareholders. As a REIT, PMC Commercial generally will not be subject to corporate level Federal income tax on net income that is currently distributed to shareholders.

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

	Years Ended December 31,
	2012		2011		2010
	(In thousands)
Net income (loss)	$	(2,179)	$	3,647	$	4,297
Book/tax differences:
Gains related to real estate		-		(235)		387
Strategic alternatives		(678)		678		-
Impairment losses		300		804		317
Severance accrual (payments)		1,777		(100)		(33)
Amortization and accretion		(188)		(68)		(102)
Loan valuation		1,403		184		(241)
Other, net		157		8		(174)
Subtotal		592		4,918		4,451
Adjustment for TRS net loss (income), net of tax		(840)		(131)		340
Dividend distribution from TRS		-		1,000		300
REIT taxable income (loss)	$	(248)	$	5,787	$	5,091
Distributions declared	$	6,353	$	6,767	$	6,757
Basic weighted average common shares outstanding		10,585		10,570		10,554

Dividends per share for dividend reporting purposes were as follows:

	Years Ended December 31,
	2012				2011				2010
	Amount Per Share		Percent		Amount Per Share		Percent		Amount Per Share		Percent
Non-qualified dividends	$	-		-	$	0.477		74.53%	$	0.568		88.75%
Qualified dividends		-		-		0.095		14.78%		0.028		4.37%
Non-taxable return of capital		0.600		100.00%		0.068		10.69%		0.044		6.88%
	$	0.600		100.00%	$	0.640		100.00%	$	0.640		100.00%

During 2012, due primarily to deductible expenses related to exploration of strategic alternatives, we had a taxable loss. Thus, all dividends were deemed to be non-taxable returns of capital.

In general, in order to meet our taxable income distribution requirements, we may make an election under the Code to treat a portion of the distributions declared and paid in the current year as distributions of the prior year’s taxable income.

PMC Commercial has wholly-owned TRS’s which are subject to Federal income taxes. The income generated from the TRS’s is taxed at normal corporate rates.

We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on the final tax returns are generally recorded in the period when the returns are filed.

Income tax provision (benefit) related to the TRS’s consisted of the following:

	Years Ended December 31,
	2012		2011		2010
	(In thousands)
Federal:
Current provision	$	821	$	483	$	514
Deferred benefit		(256)		(369)		(645)
Income tax provision (benefit)	$	565	$	114	$	(131)

In addition, income tax benefit of $115,000 for the year ended December 31, 2012 is included in discontinued operations based on operating losses of REO of our TRS’s.

The provision (benefit) for income taxes results in effective tax rates that differ from Federal statutory rates of 34%. The reconciliation of TRS income tax attributable to income (loss) from continuing operations computed at Federal statutory rates to income tax provision (benefit) was as follows:

	Years Ended December 31,
	2012		2011		2010
	(In thousands)
Income (loss) from continuing operations before income taxes for TRS’s	$	1,628	$	245	$	(471)
Expected Federal income tax provision (benefit)	$	553	$	83	$	(160)
Preferred dividend of subsidiary		31		31		31
Other adjustments		(19)		-		(2)
Income tax provision (benefit)	$	565	$	114	$	(131)

We have identified our Federal tax returns and our state returns in Texas as “major” tax jurisdictions. The periods subject to examination for our Federal tax returns and state returns in Texas are the 2009 through 2011 tax years. We believe that all income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain tax positions have been recorded.

The components of our net deferred tax asset were as follows:

	December 31,
	2012		2011
	(In thousands)
Deferred tax assets:
Secured borrowings - government guaranteed loans	$	1,054	$	814
Retained interests in transferred assets		387		364
Servicing asset		268		225
Net operating losses		25		25
Other		69		38
Total gross deferred tax assets		1,803		1,466
Deferred tax liabilities:
Loans receivable		177		56
Discount on debentures payable		-		1
Total gross deferred tax liabilities		177		57
Deferred tax asset, net	$	1,626	$	1,409

The net operating loss carryforwards at December 31, 2012 were generated by a TRS and are available to offset future taxable income of this TRS. The net operating loss carryforwards expire from 2027 to 2031.

We paid $617,000, $612,000 and $538,000 in income taxes during 2012, 2011 and 2010, respectively.