Loans Receivable, net

6 Months Ended

Jun. 30, 2013

Receivables [Abstract]

Loans Receivable, net

Note 3. Loans Receivable, net:

Loans receivable, net, consisted of the following:

	June 30,			December 31,
	2013			2012
	(In thousands)
Commercial mortgage loans	$	118,677		$	128,401
SBIC commercial mortgage loans		55,239			47,621
SBA 7(a) loans, subject to secured borrowings		36,585			37,909
SBA 7(a) loans		28,195			28,196
Total loans receivable		238,696			242,127
Adjusted by:
Deferred capitalized costs, net		247			277
Loan loss reserves		(3,827	)		(3,413	)
Loans receivable, net	$	235,116		$	238,991

Commercial mortgage loans

Represents the loans held by the parent company, PMC Commercial Trust.

SBIC commercial mortgage loans

Represents loans of our licensed 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; therefore, no loan loss reserves are recorded on the $36.6 million and $37.9 million, respectively of government guaranteed portions of these SBA 7(a) loans included in loans receivable at June 30, 2013 and December 31, 2012.

SBA 7(a) loans

Represents the non-government guaranteed retained portion of loans originated under the SBA 7(a) program and the government guaranteed portion of loans that have not yet been fully funded or sold. The balance is net of retained loan discounts of $2.5 million and $2.1 million at June 30, 2013 and December 31, 2012, respectively.

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, 2013 and December 31, 2012, 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 June 30, 2013 and December 31, 2012, 13% and 15%, respectively, 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, 2013 or December 31, 2012. 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 approximately 5% of our loans receivable at both June 30, 2013 and December 31, 2012. 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 Subject to Credit Risk (loans receivable less SBA 7(a) loans, subject to secured borrowings as the SBA has guaranteed payment of the principal). Balances are prior to loan loss reserves and deferred capitalized costs, net.

June 30, 2013
Category	Totals				Commercial Mortgage Loans				SBA 7(a) Loans
	(Dollars in thousands)
Current (1)	$	196,083	97.0	%	$	168,554	96.9	%	$	27,529	97.6	%
Between 29 and 59 days delinquent		1,571	0.8	%		1,367	0.8	%		204	0.7	%
Between 60 and 89 days delinquent		1,080	0.5	%		954	0.6	%		126	0.5	%
Over 89 days delinquent (2)		3,377	1.7	%		3,041	1.7	%		336	1.2	%
	$	202,111	100.0	%	$	173,916	100.0	%	$	28,195	100.0	%

(1) Includes $6.0 million of loans classified as troubled debt restructurings which were current at June 30, 2013 based on revised note terms.

(2) Loans are classified as troubled debt restructurings. We foreclosed on the collateral underlying these three loans – limited service hospitality properties in July 2013.

December 31, 2012
Category	Totals				Commercial Mortgage Loans				SBA 7(a) Loans
	(Dollars in thousands)
Current (1)	$	198,282	97.1	%	$	170,429	96.8	%	$	27,853	98.8	%
Between 29 and 59 days delinquent		2,824	1.4	%		2,482	1.4	%		342	1.2	%
Between 60 and 89 days delinquent		1	—			—	—			1	—
Over 89 days delinquent		3,111	1.5	%		3,111	1.8	%		—	—
	$	204,218	100.0	%	$	176,022	100.0	%	$	28,196	100.0	%

(1) Includes $7.6 million of loans classified as troubled debt restructurings which were current at December 31, 2012 based on revised note terms.

Loan Loss Reserves

Management closely monitors our loans which require evaluation for loan loss reserves based on specific identification metrics 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 on which the fair value of the collateral is less than the remaining unamortized principal balance. 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 the borrowers are current on their payments; however, they may be delinquent on their property taxes, insurance, or franchise fees or may be under agreements which provide for interest only payments during a short period of time.

Management has classified our Loans Receivable Subject to Credit Risk as follows (balances represent our investment in the loans prior to loan loss reserves and deferred capitalized costs):

	June 30, 2013
	Totals		%			Commercial Mortgage Loans		%			SBA 7(a) Loans		%
	(Dollars in thousands)
Satisfactory	$	185,564		91.8	%	$	158,769		91.3	%	$	26,795		95.0	%
OAEM		1,874		0.9	%		1,404		0.8	%		470		1.7	%
Substandard		10,017		5.0	%		9,747		5.6	%		270		1.0	%
Doubtful		4,656		2.3	%		3,996		2.3	%		660		2.3	%
	$	202,111		100.0	%	$	173,916		100.0	%	$	28,195		100.0	%

	December 31, 2012
	Totals		%			Commercial Mortgage Loans		%			SBA 7(a) Loans		%
	(Dollars in thousands)
Satisfactory	$	187,749		92.0	%	$	159,994		90.9	%	$	27,755		98.5	%
OAEM		81		—			—		—			81		0.3	%
Substandard		13,043		6.4	%		12,917		7.3	%		126		0.4	%
Doubtful		3,345		1.6	%		3,111		1.8	%		234		0.8	%
	$	204,218		100.0	%	$	176,022		100.0	%	$	28,196		100.0	%

Our provision for loan losses (excluding reductions of loan losses) as a percentage of our weighted average outstanding Loans Receivable Subject to Credit Risk was 0.37% and 0.41% during the six months ended June 30, 2013 and 2012, respectively. To the extent one or several of our borrowers experience significant operating difficulties and we are forced to liquidate the collateral underlying the loan, future losses may be substantial.

The activity in our loan loss reserves was as follows:

	Six Months Ended June 30, 2013
	Total			Commercial Mortgage Loans			SBA 7(a) Loans
	(In thousands)
Balance, beginning of year	$	3,413		$	2,850		$	563
Provision for loan losses		758			494			264
Reduction of loan losses		(344	)		(342	)		(2	)
Balance, end of period	$	3,827		$	3,002		$	825

	Six Months Ended June 30, 2012
	Total			Commercial Mortgage Loans			SBA 7(a) Loans
	(In thousands)
Balance, beginning of year	$	1,812		$	1,329		$	483
Provision for loan losses		816			726			90
Reduction of loan losses		(223	)		(194	)		(29	)
Principal balances written-off		(799	)		(627	)		(172	)
Balance, end of period	$	1,606		$	1,234		$	372

Information on those loans considered to be impaired loans was as follows:

	June 30, 2013
	Total		Commercial Mortgage Loans		SBA 7(a) Loans
	(In thousands)
Impaired loans requiring reserves (1)	$	10,958	$	9,322	$	1,636
Impaired loans expected to be fully recoverable (1)		2,178		2,059		119
Total impaired loans (2)	$	13,136	$	11,381	$	1,755
Loan loss reserves	$	2,049	$	1,666	$	383

	December 31, 2012
	Total		Commercial Mortgage Loans		SBA 7(a) Loans
	(In thousands)
Impaired loans requiring reserves (1)	$	10,927	$	10,049	$	878
Impaired loans expected to be fully recoverable (1)		2,244		2,123		121
Total impaired loans (3)	$	13,171	$	12,172	$	999
Loan loss reserves	$	1,535	$	1,382	$	153

(1) Balances represent our recorded investment. Includes loans classified as troubled debt restructurings.

(2) The unpaid principal balance of our impaired commercial mortgage loans was $12,021,000 at June 30, 2013. The unpaid principal balance of our impaired SBA 7(a) loans (excluding the government guaranteed portion) was $863,000 at June 30, 2013.

(3) The unpaid principal balance of our impaired commercial mortgage loans was $12,703,000 at December 31, 2012. The unpaid principal balance of our impaired SBA 7(a) loans (excluding the government guaranteed portion) was $362,000 at December 31, 2012.

	Three Months Ended June 30, 2013						Three Months Ended June 30, 2012
	Total		Commercial Mortgage Loans		SBA 7(a) Loans		Total		Commercial Mortgage Loans		SBA 7(a) Loans
	(In thousands)
Average impaired loans	$	13,195	$	11,442	$	1,753	$	8,221	$	7,731	$	490
Interest income on impaired loans	$	101	$	84	$	17	$	98	$	96	$	2

	Six Months Ended June 30, 2013						Six Months Ended June 30, 2012
	Total		Commercial Mortgage Loans		SBA 7(a) Loans		Total		Commercial Mortgage Loans		SBA 7(a) Loans
	(In thousands)
Average impaired loans	$	13,120	$	11,621	$	1,499	$	8,237	$	7,726	$	511
Interest income on impaired loans	$	210	$	173	$	37	$	187	$	182	$	5

Our recorded investment in Non-Accrual Loans at June 30, 2013 of $6,941,000 was comprised of $1,583,000 of SBA 7(a) loans and $5,358,000 of commercial mortgage loans. Included within the SBA 7(a) loans at June 30, 2013 was a government guaranteed portion of $1,123,000 (i.e., one loan had a related secured borrowing as it was sold as a hybrid) on which we have no credit loss exposure. At June 30, 2013, we were in the process of foreclosing on the collateral underlying the majority of these loans. Our recorded investment in Non-Accrual Loans at December 31, 2012 of $5,768,000 was comprised of an $855,000 SBA 7(a) loan and $4,913,000 of commercial mortgage loans. Included within the SBA 7(a) loan at December 31, 2012 was the government guaranteed portion of $634,000 (i.e., the loan had a related secured borrowing as it was sold as a hybrid) on which we have no credit loss exposure. We did not have any loans receivable past due 90 days or more which were accruing interest at June 30, 2013 or December 31, 2012.

Our troubled debt restructurings include loans with a recorded investment at June 30, 2013 of $4.1 million which were modified voluntarily under agreements to allow extended interest only periods instead of the principal and interest payments required by the notes. In addition, loans with a recorded investment at June 30, 2013 of $5.8 million were modified involuntarily through Chapter 11 bankruptcy proceedings. The bankruptcy plans were confirmed with modified terms including extended interest only and amortization periods or modification of timing of payments combined with interest rate adjustments. Of our troubled debt restructurings, loans with a recorded investment of $8.4 million are no longer complying with their modified terms, including lack of required payments at June 30, 2013. A payment default is defined as a payment that becomes at least 30 days past due after the date the loan was restructured and/or non-payment or lack of timely payment of other loan related obligations such as real estate taxes.

Detailed information on our troubled debt restructurings was as follows:

	June 30, 2013
	Commercial Mortgage Loans				SBA 7(a) Loan
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
	(In thousands)
Troubled debt restructurings requiring reserves (1)	$	9,303	$	9,913	$	210	$	235
Troubled debt restructurings without reserves		2,063		2,108		—		—
Total troubled debt restructurings	$	11,366	$	12,021	$	210	$	235
Number of loans		8				1
Loan loss reserves	$	1,666			$	135

	December 31, 2012
	Commercial Mortgage Loans				SBA 7(a) Loan
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
	(In thousands)
Troubled debt restructurings requiring reserves (1)	$	10,049	$	10,531	$	854	$	846
Troubled debt restructurings without reserves		2,123		2,172		—		—
Total troubled debt restructurings	$	12,172	$	12,703	$	854	$	846
Number of loans		8				1
Loan loss reserves	$	1,382			$	130

(1) At December 31, 2012, the SBA 7(a) loan recorded investment and unpaid principal balance include the government guaranteed portion of $634,000 on which we have no credit loss exposure. However, during 2013, the government guaranteed portion of $634,000 was reclassified from secured borrowings to loans receivable, net, representing a non-cash transaction since it was repurchased by the SBA from the secondary market. Therefore, at June 30, 2013, the SBA 7(a) loan recorded investment and unpaid principal balance do not include the government guaranteed portion of $634,000.