UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant ☐ |
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Soliciting Material under Rule 14a-12 |
PennyMac Mortgage Investment Trust |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
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3043 TOWNSGATE ROAD WESTLAKE VILLAGE, CALIFORNIA 91361 |
April 23, 2018
Dear Shareholder:
You are cordially invited to attend the 2018 Annual Meeting of Shareholders, or the Annual Meeting, of PennyMac Mortgage Investment Trust to be held on Tuesday, June 5, 2018, at 11:00 a.m. Pacific Time. The Annual Meeting will be held at our corporate offices located at 3043 Townsgate Road, Westlake Village, California 91361.
The Notice of 2018 Annual Meeting of Shareholders and Proxy Statement are attached to this letter and contain information about the matters on which you will be asked to vote at the Annual Meeting. We will transact no other business at the Annual Meeting, except for business properly brought before the Annual Meeting or any postponement or adjournment thereof by our Board of Trustees. Only our common shareholders of record at the close of business on the record date are entitled to vote at the Annual Meeting.
Your vote is very important. Please carefully read the Notice of 2018 Annual Meeting of Shareholders and Proxy Statement so that you will know the matters on which we plan to vote at the Annual Meeting, and then vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. You may also cast your vote in person at the Annual Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct that firm or bank as to how to vote your shares.
ANNUAL MEETING ADMISSION: In order to attend the Annual Meeting in person, you will need to present your admission ticket, or an account statement showing your ownership of our common shares as of the record date, and valid government-issued photo identification. The indicated portion of your proxy card will serve as your admission ticket.
On behalf of our Board of Trustees, we thank you for your participation and look forward to seeing you on June 5th.
Sincerely,
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3043 Townsgate Road Westlake Village, California 91361 |
Notice of 2018 Annual Meeting of Shareholders
Date and Time: |
Tuesday, June 5, 2018 at 11:00 a.m., Pacific Time | |||
Location: |
PennyMac Mortgage Investment Trust 3043 Townsgate Road Westlake Village, California 91361 | |||
Record Date: |
April 6, 2018. Only shareholders of record at the close of business on the record date are entitled to receive notice of, and vote at, the 2018 Annual Meeting of Shareholders, or Annual Meeting, and any continuation, postponement or adjournment thereof. | |||
Mailing Date: |
We intend to mail the Notice Regarding the Availability of Proxy Materials, or the Proxy Statement and proxy card, as applicable, on or about April 23, 2018 to our shareholders of record on the record date. | |||
Items of Business: |
| To elect the three (3) Class III trustees identified in the enclosed Proxy Statement to serve on our Board of Trustees, each for a term expiring at the 2021 annual meeting of shareholders; | ||
| To ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2018; | |||
| To approve, by non-binding vote, our executive compensation; and | |||
| To transact such other business as may properly come before the Annual Meeting and any postponement or adjournment thereof. | |||
Attendance: |
If you plan to attend the Annual Meeting, you will need to bring proof of ownership in order to be granted admission. Please read INFORMATION CONCERNING VOTING AND SOLICITATIONWho can attend the Annual Meeting? in the accompanying Proxy Statement. | |||
Voting: |
Whether or not you plan to attend the Annual Meeting, we encourage you to vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. You may also cast your vote in person at the Annual Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct that firm or bank as to how to vote your shares. |
By Order of the Board of Trustees,
DEREK W. STARK
Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 5, 2018:
This Notice of 2018 Annual Meeting of Shareholders, Proxy Statement and 2017 Annual Report to Shareholders, which includes our Annual Report on
Form 10-K for the fiscal year ended December 31, 2017, are available at www.proxyvote.com.
TABLE OF CONTENTS |
| 2018 Proxy Statement | i |
PROXY STATEMENT SUMMARY |
This summary contains highlights about our Board and the upcoming 2018 Annual Meeting of Shareholders, or Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting and we encourage you to read the entire Proxy Statement before voting.
2018 Annual Meeting of Shareholders
Date and Time:
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Tuesday, June 5, 2018, at 11:00 a.m. Pacific Time
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Location:
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3043 Townsgate Road, Westlake Village, California 91361
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Record Date:
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April 6, 2018
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Mail Date:
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April 23, 2018
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Voting Matters and Board Recommendations
Matter | Our Board Vote Recommendation | |||||
Proposal I:
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Election of three (3) Class III trustees to the Board of Trustees
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FOR each Trustee Nominee
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Proposal II:
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Ratification of the appointment of our independent registered public accounting firm
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FOR
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Proposal III:
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Approval, by non-binding vote, of our executive compensation
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FOR
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Trustee Nominees
Trustee Nominees | Age | Trustee Since |
Principal Occupation / Key Experience |
Committee Membership | ||||
Stanford L. Kurland
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65
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2009
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Executive Chairman of PennyMac Mortgage Investment Trust
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None
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David A. Spector
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55
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2009
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President and Chief Executive Officer of PennyMac Mortgage Investment Trust
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None
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Randall D. Hadley*
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74
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2009
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Former CPA and Retired Partner of Grant Thornton LLP
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Audit Committee
Related Party Matters Committee
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Audit Committee Financial Expert
* Independent Lead Trustee
| 2018 Proxy Statement | 1 |
PROXY STATEMENT SUMMARY |
We believe our Board possesses deep and broad skill sets and specific experience and expertise that facilitate strong oversight and strategic direction for us as a leading residential mortgage real estate investment trust, or REIT.
Corporate Governance Highlights
We continuously monitor developments, trends and best practices in corporate governance and consider feedback from shareholders and proxy advisory firms such as Institutional Shareholder Services, or ISS, as appropriate, when enhancing our governance, policies and structure.
✓ Shareholder Right to Amend the Bylaws. We amended our Bylaws to provide shareholders with the concurrent right to amend our Bylaws by the affirmative vote of a majority of all votes entitled to be cast on a matter pursuant to a proposal submitted by a group of up to five shareholders holding at least 1% of our outstanding common shares continuously for at least one year. |
✓ Shareholder Engagement. We value the perspectives of our shareholders. Since our 2017 Annual Meeting, in addition to our regular outreach to investors by our executive officers and our Investor Relations department, our trustees have engaged in governance-focused outreach activities and discussions with shareholders comprising approximately 57% of the outstanding common shares that voted against our say-on-pay advisory vote. |
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✓ Majority Voting Standard in the Election of Trustees. Our Second Amended and Restated Bylaws provide for a majority voting standard for uncontested trustee elections and a plurality voting standard for contested trustee elections. |
✓ Independent Lead Trustee. The independent trustees of our Board elected Randall D. Hadley as our independent lead trustee for a three-year term that expires in February 2020. |
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✓ Trustee Resignation Policy. Our Corporate Governance Guidelines include a requirement that any trustee nominee who fails to receive a majority vote in an uncontested election will promptly tender his or her resignation to the Board. |
✓ Retirement Age. It is our general policy that no trustee having attained the age of 75 years shall be nominated for re-election or re-appointment to the Board. |
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✓ Trustee Limitations on Number of Boards. A trustee who is currently serving as a chief executive officer of a public company, including our Chief Executive Officer, is not permitted to serve on more than two outside public company boards. No other trustee is permitted to serve on more than five outside public company boards. |
✓ Regular Executive Sessions. Our independent trustees meet privately on a regular basis. Our independent lead trustee presides at such meetings. |
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✓ Robust Share Ownership Guidelines. We have robust share ownership guidelines for our non-management trustees (five times base annual retainer) and executive officers ($2 million for our Executive Chairman and our President and Chief Executive Officer; $500,000 for all other executive officers). |
✓ Regular Board Evaluation. The Nominating and Corporate Governance Committee sponsors an annual self-assessment of the Boards performance as well as the performance of each committee of the Board. |
2 | | 2018 Proxy Statement |
PROXY STATEMENT SUMMARY |
2017 Business Highlights
A summary of our full-year financial highlights is as follows:
Full-Year 2017 Highlights(1)
| Net investment income of $317.9 million, up 17 percent from the prior year |
| Net income attributable to common shareholders of $102.5 million, up 35 percent from the prior year; includes $13.0 million benefit from remeasurement of the net deferred tax liability in our taxable REIT subsidiary |
| Diluted earnings per common share of $1.48, up 37 percent from the prior year; includes a benefit of $0.18 from the remeasurement of our net deferred tax liability |
| Return on average common equity of 8 percent, up from 5 percent for the prior year |
| Issued 12.4 million preferred shares for gross proceeds of $310 million |
| Repurchased approximately 6.3 million of our common shares between March 9, 2017 and January 5, 2018 at a cost of $101.8 million and at a significant discount to book value |
| Made substantial progress in our strategic transformation, increasing our equity allocation to investments in credit risk transfer, mortgage servicing rights, and excess servicing spread from 43 percent to 66 percent of total equity, while decreasing our allocation to distressed mortgage loans from 39 percent to 22 percent |
(1) | For complete information regarding our 2017 financial performance, shareholders should read Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and accompanying notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, or Fiscal 2017, which was filed with the SEC on March 1, 2018 and is being made available to shareholders with this Proxy Statement as a part of our 2017 Annual Report to Shareholders. |
| 2018 Proxy Statement | 3 |
PROXY STATEMENT SUMMARY |
Executive Compensation Highlights
What We Do
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What We Dont Do
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✓ Bias toward performance-based equity: Our Board seeks to ensure that our long-term incentive awards are weighted toward performance-based equity vehicles. We design our compensation program in a manner that is biased toward performance-based compensation so as to align pay with performance. |
û No minimum levels of annual equity awards: Our executive officers are not guaranteed any minimum levels of annual equity award grants. |
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✓ Clawback Policy: Our Board maintains a clawback policy that allows us to recoup certain incentive compensation paid on the basis of erroneous financial statements that result in a material accounting restatement. |
û No compensation other than equity awards for our named executive officers: Our named executive officers do not receive annual base salaries or cash bonuses. |
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✓ Double-trigger vesting: We require that our equity awards have double trigger to initiate accelerated vesting upon a change in control. |
û No severance provisions: We do not provide cash severance to our executives. |
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✓ Minimum vesting periods: Our equity incentive plan provides that our equity awards are subject to a minimum vesting period of no less than one year on 95% of equity awards granted and our grants generally vest over three years, with approximately equal annual installments on the first, second and third anniversaries of the grant date. |
û No excessive risk taking: We do not encourage our officers and employees to engage in excessive risk taking. Our compensation program is designed to encourage long-term decision making in alignment with the interests of our shareholders. |
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✓ Robust share ownership guidelines: We impose robust share ownership guidelines on our trustees and executive officers to ensure that their interests are aligned with those of our shareholders. |
û No perquisites or excise tax gross-ups: We do not provide perquisites or related excise tax gross-ups to our executive officers. |
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✓ Consideration of Say on Pay Vote and proxy advisory and shareholder feedback: We engage in careful consideration of the annual say-on-pay results and feedback from shareholders and proxy advisory firms. |
û No stock option re-pricing: Our equity incentive plan prohibits the re-pricing of stock options. |
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✓ Shareholder engagement: In response to the 2017 say-on-pay vote, we engaged in active shareholder discussions regarding compensation and governance related issues. |
û No speculative or short-term trading: We prohibit our officers, employees and trustees from engaging in speculative and short-term trading of our securities. |
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✓ Comprehensive review of peer group: On an annual basis, we engage in a comprehensive review to assess and identify a relevant peer group of companies in our or a related industry. |
û No hedging, pledging, short sales, or margin trading: We prohibit our officers, employees and trustees from engaging in hedging, pledging, short sales, trading in publicly traded put or call options or trading on margin involving our securities. |
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✓ Independent compensation consultant: We utilize the services of Pearl Meyer, which is engaged directly by the Compensation Committee as an outside independent compensation consultant to advise on executive compensation matters. |
û No supplemental executive retirement plans: We do not maintain any supplemental executive retirement plans for named executive officers. |
4 | | 2018 Proxy Statement |
CORPORATE GOVERNANCE |
Trustee Qualification and Selection Criteria
The Nominating and Corporate Governance Committee is responsible for developing the general criteria, subject to approval by the full Board, for use in identifying, evaluating and selecting qualified candidates for election or re-election to our Board. The Nominating and Corporate Governance Committee periodically reviews with our Board the appropriate skills and characteristics required of Board members in the context of the current composition of our Board. Final approval of trustee candidates is determined by the full Board, and invitations to join our Board are extended by our Executive Chairman on behalf of the entire Board.
The Nominating and Corporate Governance Committee, in accordance with our Corporate Governance Guidelines, seeks to create a board that is strong in its collective knowledge and has skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, risk management, corporate governance, and knowledge of the mortgage and REIT sectors and the global markets. The Nominating and Corporate Governance Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience, and differences in viewpoints and skills. We do not have a formal policy with respect to diversity; however, our Board and Nominating and Corporate Governance Committee believe that it is essential that our trustees represent diverse viewpoints and backgrounds. In considering candidates for our Board, the Nominating and Corporate Governance Committee considers the entirety of each candidates credentials in the context of these standards and in light of the needs of our Board and our Company at that time, given the then current mix of trustee attributes. The Nominating and Corporate Governance Committee also considers a candidates accessibility and availability to serve effectively on our Board, and it conducts inquiries into the background and qualifications of potential candidates. With respect to the nomination of continuing trustees for re-election, the individuals past contributions to our Board are also considered.
The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating nominees for trustee. The Nominating and Corporate Governance Committee assesses the appropriate size of our Board and whether any vacancies on our Board are expected due to retirement or otherwise. In connection with the election of Ms. Sullivan, we increased the size of our Board to nine trustees. In the event that a vacancy is anticipated, or otherwise arises, the Nominating and Corporate Governance Committee considers whether to fill any such vacancy and, if so, identifies various potential candidates for trustee. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year.
Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of our Board, professional search firms or other persons. During 2017, the Nominating and Corporate Governance Committee did not retain an independent third party to assist in identifying trustee candidates for our Board. Ms. Sullivan was identified as a trustee candidate by a non-management trustee of our Board serving on the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will also consider recommendations for nominees properly submitted by our shareholders. These recommendations should be submitted in writing to our Secretary at our principal executive offices located at 3043 Townsgate Road, Westlake Village, California 91361. If any materials are provided by a shareholder in connection with a recommendation for a trustee nominee, such materials are forwarded to the Nominating and Corporate Governance Committee. Following verification of the shareholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Corporate Governance Committee, in the same manner as other recommendations, at its next regularly scheduled or special meeting.
Independence of Our Trustees
The NYSE rules require that at least a majority of our trustees be independent of our Company and management. The rules also require that our Board affirmatively determine that there are no material relationships between a trustee and us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us) before such trustee can be deemed independent. We have adopted independence standards consistent with NYSE rules and the rules of the Securities and Exchange Commission, or the SEC. Our Board has reviewed both direct and indirect transactions and relationships that each of our trustees has or had with us and our management.
As a result of this review, our Board, based upon the fact that none of our non-management trustees have any material relationships with us other than as trustees and holders of our common shares, affirmatively determined that seven of our trustees are independent trustees under NYSE rules. Our independent trustees are Messrs. Carnahan, DuFauchard, Hadley and Willey and Mmes. McAllister, Stewart and Sullivan. In addition, the Board affirmatively determined that Clay Halvorsen, who resigned from the Board on April 27, 2017, was an independent trustee.
| 2018 Proxy Statement | 5 |
CORPORATE GOVERNANCE |
Board of Trustees Leadership
Our Board leadership structure is currently comprised of our Executive Chairman, our President and Chief Executive Officer, our independent lead trustee, and our independent Board committees. We believe this structure, including the separation of the offices of the Executive Chairman and the President and Chief Executive Officer, provides a very well-functioning and effective balance between strong management leadership and appropriate safeguards and oversight by non-management Board members. As Executive Chairman, Mr. Kurland is charged with leading our strategy, organizational development and governance and representing our Company with business partners, investors and other key external stakeholders, with a focus on advising and helping guide members of our senior management team in their respective areas of responsibility. As President and Chief Executive Officer, Mr. Spector has the in-depth focus and hands-on perspective of being ultimately responsible for the day-to-day management decisions and for leading our senior management team in the execution of our strategic initiatives.
Our Board believes that independent trustees and management have different perspectives and roles in strategy development. Our independent trustees bring experience, oversight and expertise from outside our Company and industry, while the Executive Chairman and the President and Chief Executive Officer bring company-specific experience and expertise. We believe Mr. Kurland, as our former chief executive officer, is well situated to serve as Executive Chairman because we believe he is able to utilize the in-depth focus and perspective gained in running our Company to effectively and efficiently lead our Board. As the trustee most familiar with our business and industry, he is most capable of identifying new initiatives and businesses, strategic priorities and other critical and/or topical agenda items for discussion by our Board and then leading the discussion to ensure our Boards proper oversight of these issues.
Our Board believes that this leadership structure, which separates the Chief Executive Officer and Executive Chairman roles, is appropriate at this time in light of our evolving business and operating environment, our need to facilitate the efficient information flow between senior management and our Board, our desire to provide guidance to senior management, and our continued focus on promoting strategy development and execution, all of which are essential to effective governance.
Independent Lead Trustee
We believe our Board leadership structure is also strengthened through the appointment of an influential independent lead trustee with a strong voice. The independent lead trustee works with our Executive Chairman and other trustees to provide informed, independent oversight of our management and affairs. Among other things, the independent lead trustee reviews and provides input on Board meeting agendas and materials, coordinates with committee chairs to ensure the committees are fulfilling the responsibilities set forth in their respective charters, serves as the principal liaison between our Executive Chairman and the independent trustees, and chairs an executive session of the independent trustees at each regularly scheduled Board meeting. Our Board has re-appointed Mr. Hadley as independent lead trustee for a three (3) year term that expires in February 2020.
Together, our Executive Chairman and the independent lead trustee provide leadership to and work with our Board to define its structure and activities in the fulfillment of its responsibilities.
6 | | 2018 Proxy Statement |
CORPORATE GOVERNANCE |
The Role of the Board in Risk Oversight
Our Board and each of its committees, and in particular the Risk Committee, have an active role in overseeing our risk management process, while supporting organizational objectives, improving long-term organizational performance and creating shareholder value. Our senior management is responsible for designing, implementing and maintaining an effective and appropriate approach for managing enterprise risk. A fundamental part of risk management oversight is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for our Company. The involvement of the full Board in determining our business strategy is a key part of its assessment of managements appetite for risk and determination of what constitutes an appropriate level of risk for our Company. While our Board has the ultimate oversight responsibility for the risk management process, particularly with respect to those risks inherent in the operation of our businesses and the implementation of our strategic plan, the committees of our Board also share responsibility for overseeing specific areas of risk management as follows:
Committee
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Primary Risk Oversight Responsibility
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Audit
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The Audit Committee focuses on risks associated with internal controls and securities, financial and accounting compliance, and receives an annual risk assessment report from our internal auditors.
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Compensation
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The Compensation Committee focuses on oversight of our compensation policies and practices, including whether such policies and practices balance risk taking and rewards in an appropriate manner that is in alignment with shareholder interests and does not encourage excessive risk taking.
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Finance
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The Finance Committee focuses on risks relating to our Companys liquidity and capital resources and our investment policies and strategies.
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Nominating and Corporate Governance
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The Nominating and Corporate Governance Committee focuses on risks associated with proper board governance, including the independence of our trustees and the assessment of the performance and effectiveness of each member and Committee of our Board.
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Related Party Matters
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The Related Party Matters Committee focuses on risks arising out of potential conflicts of interest between us, on the one hand, and our Manager, PennyMac Loan Services, LLC, or our Servicer, their affiliates or any other identified related party, on the other hand.
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Risk
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The Risk Committee oversees our Managers enterprise risk management function in relation to our Company and focuses on credit risk, mortgage compliance risk and operational risk, including cybersecurity risk.
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While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about the nature of all such risks.
Committees of the Board of Trustees
Our Board has established six principal committees: the Audit Committee, the Compensation Committee, the Finance Committee, the Nominating and Corporate Governance Committee, the Related Party Matters Committee and the Risk Committee. In addition to the standing committees described above, our Board may also establish ad hoc committees for limited periods of time in order to address particular matters. Our Board committees have also adopted written charters that govern their conduct, each of which is available on our website at www.pennymac-reit.com.
| 2018 Proxy Statement | 7 |
CORPORATE GOVERNANCE |
The current chairs and members of the committees are identified in the following table:
Trustee | Audit | Compensation | Finance | Nominating and Corporate Governance |
Related Party Matters |
Risk | ||||||||||||||||||||||||
Non-Management Trustees | ||||||||||||||||||||||||||||||
Scott W. Carnahan | X | X | CC | |||||||||||||||||||||||||||
Preston DuFauchard | X | X | CC | |||||||||||||||||||||||||||
Randall D. Hadley* | CC | X | ||||||||||||||||||||||||||||
Nancy McAllister | X | CC | X | |||||||||||||||||||||||||||
Stacey D. Stewart | X | CC | ||||||||||||||||||||||||||||
Marianne Sullivan | X | X | X | |||||||||||||||||||||||||||
Frank P. Willey | CC | X | X | |||||||||||||||||||||||||||
Management Trustees | ||||||||||||||||||||||||||||||
Stanford L. Kurland | ||||||||||||||||||||||||||||||
David A. Spector |
- Executive Chairman
* Independent Lead Trustee
CC Committee Chairperson
The primary responsibilities, membership and meeting information for the committees of our Board during 2017 are summarized below:
Audit Committee
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Primary Responsibilities
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Members: |
The Audit Committee assists our Board in overseeing:
our accounting and financial reporting processes;
the integrity and audits of our financial statements;
our internal control function;
our compliance with related legal and regulatory requirements;
the effectiveness of our compliance programs as they relate to applicable laws and regulations governing securities, financial and accounting matters;
the qualifications and independence of our independent registered public accounting firm; and
the performance of our independent registered public accounting firm and our internal auditors.
The Audit Committee is also responsible for preparing an audit committee report to be included in our annual proxy statement, reviewing and discussing managements discussion and analysis of financial condition and results of operation to be included in our SEC filings, the engagement, retention and compensation of our independent registered public accounting firm, reviewing with our independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by our independent registered public accounting firm, considering the range of audit and permissible non-audit fees, and reviewing the adequacy of our internal accounting controls. | |||
Scott W. Carnahan Randall D. Hadley Marianne Sullivan |
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Meetings in 2017: 8 |
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Mr. Hadley and Mr. Carnahan each serve as an audit committee financial expert, as that term is defined by the SEC. Each of the members of the Audit Committee is financially literate under the rules of the NYSE.
Our Board has determined that all of the trustees serving on the Audit Committee are independent under the applicable rules of the NYSE and SEC. For additional information on the Audit Committee, please see the section below entitled Report of the Audit Committee.
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8 | | 2018 Proxy Statement |
CORPORATE GOVERNANCE |
Compensation Committee
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Primary Responsibilities
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Members: |
The principal functions of the Compensation Committee are to:
evaluate the performance of our Chief Executive Officer and other executive officers;
adopt and administer the compensation policies, plans and benefit programs for our executive officers and all other members of our executive team;
review and recommend to the Board compensation plans, policies and programs;
prepare the compensation committee report on executive compensation to be included in our annual proxy statement;
review and discuss the Companys compensation discussion and analysis to be included in the Companys annual proxy statement;
recommend to the Board the compensation for our independent trustees; and
administer the issuance of any securities under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan, or the 2009 Plan.
The Compensation Committee may form, and delegate authority to, subcommittees when it deems appropriate to the extent permitted under applicable law. | |||
Nancy McAllister Stacey D. Stewart Frank P. Willey |
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Meetings in 2017: 4 |
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Our Board has determined that all of the trustees serving on the Compensation Committee are independent under the applicable rules of the NYSE and SEC. For additional information on the Compensation Committee, please see the section below entitled Report of the Compensation Committee. |
Finance Committee
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Primary Responsibilities
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Members: |
The Finance Committee is responsible for overseeing the financial objectives, policies, procedures and activities of our Company, including a review of our capital structure, sources of funds, liquidity and financial position. In connection with these responsibilities of the Finance Committee, its principal functions are to:
review, assess and monitor our capital structure, liquidity, capital adequacy and reserves;
review and assess any policies we may establish from time to time that relate to our liquidity management, capital structure and dividend approvals;
review our short- and long-term investment strategy, investment policies and the performance of our investments;
monitor our capital budget; and
review our policies and procedures on derivatives transactions. | |||
Scott W. Carnahan Preston DuFauchard Nancy McAllister |
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Meetings in 2017: 5 |
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Our Board has determined that all of the trustees serving on the Finance Committee are independent under the applicable rules of the NYSE. |
| 2018 Proxy Statement | 9 |
CORPORATE GOVERNANCE |
Nominating and Corporate Governance
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Primary Responsibilities
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Members: |
The principal functions of the Nominating and Corporate Governance Committee are to:
seek, consider and recommend to the full Board qualified candidates for election as trustees and then recommend nominees for election as trustees at the annual meeting of shareholders;
recommend to the Board individuals qualified to be appointed as the Companys executive officers;
periodically prepare and submit to our Board for adoption the Nominating and Corporate Governance Committees selection criteria for trustee nominees;
review and make recommendations to our Board on matters involving the general operation of our Board and our corporate governance guidelines;
annually recommend to our Board nominees for each of its committees; and
annually facilitate the assessment of the performance of the individual committees and our Board as a whole and reporting thereon to our Board. | |||
Stacey D. Stewart Marianne Sullivan Frank P. Willey |
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Meetings in 2017: 6 |
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Our Board has determined that all of the trustees serving on the Nominating and Corporate Governance Committee are independent under the applicable rules of the NYSE. |
Related Party Matters Committee
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Primary Responsibilities
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Members: |
The principal functions of the Related Party Matters Committee are to:
establish policies and procedures related to the identification and management of certain transactions, and resolve other potential conflicts of interest, between us and any of our subsidiaries, on the one hand, and our Manager, our Servicer and their affiliates, on the other hand;
establish policies and procedures related to the identification of any other transactions in which certain related parties, including our trustees, executive officers and their family members, have a direct or indirect interest;
oversee and administer all such policies; and
review and, if necessary, approve and/or make recommendations to the Board regarding all such transactions, including, but not limited to, our management agreement, flow servicing agreement, mortgage banking services agreement, MSR recapture agreement and master spread acquisition and MSR servicing agreements with our Manager, our Servicer and their affiliates, and any amendments of or extensions to such agreements.
Since 2013, Mr. Joseph Sturtevant has been engaged by the Related Party Matters Committee as its outside independent consultant. In such role, Mr. Sturtevant provides the Related Party Matters Committee with financial consulting relating to, and monitoring and analysis of, our various fee arrangements and related party transactions with our Manager, our Servicer and their affiliates. | |||
Scott W. Carnahan Preston DuFauchard Randall D. Hadley Frank P. Willey |
||||
Meetings in 2017: 5 |
||||
Our Board has determined that all of the trustees serving on the Related Party Matters Committee are independent under the applicable rules of the NYSE. |
10 | | 2018 Proxy Statement |
CORPORATE GOVERNANCE |
Risk Committee
|
Primary Responsibilities
| |||
Members: |
The principal function of the Risk Committee is to assist our Board in fulfilling its oversight responsibilities relating to: (i) our Companys aggregate risk profile; (ii) specific risks expressly delegated to the Risk Committee, including credit risk, mortgage compliance risk, and operational risk; and (iii) the approach utilized by our Manager for assessing, monitoring and controlling such aggregate and specific risks. In carrying out its duties, the responsibilities of the Risk Committee include, but are not limited to, the following:
reviewing, discussing and overseeing our Managers establishment and operation of its enterprise risk management (and any significant changes thereto) in relation to our Company;
reviewing annually a schedule of all identified risks facing our Company and the alignment of such risks with the Managers management committees and committees of our Board;
reviewing annually our Managers enterprise risk management policy;
reviewing and overseeing credit risk, mortgage compliance risk, and operational risk, including our Managers establishment and operation of policies and procedures and remediation for any deficiencies with respect to such specific risks; and
directing our Manager to evaluate the effectiveness of its risk management. | |||
Preston DuFauchard Nancy McAllister Marianne Sullivan |
||||
Meetings in 2017: 4 |
||||
Our Board has determined that all of the trustees serving on the Risk Committee are independent under the applicable rules of the NYSE. |
Board of Trustees and Committee Meetings
During Fiscal 2017, our Board held 7 meetings. All trustees are expected to make every effort to attend all meetings of the Board and meetings of the committees of which they are members. Each trustee attended at least 75% of the aggregate number of meetings held in Fiscal 2017 for the period during which such trustee served with respect to meetings of our Board and each committee on which such trustee served.
Executive Sessions of the Independent Trustees
Our Corporate Governance Guidelines require that our Board hold at least four regularly scheduled meetings each year and that our independent trustees meet in executive session without management on a regularly scheduled basis. These executive sessions, which are designed to promote unfettered discussions among our independent trustees, are presided over by the independent lead trustee, Mr. Hadley. During Fiscal 2017, our non-management trustees, all of whom are independent, held four meetings in executive session.
Attendance by Members of our Board of Trustees at the 2017 Annual Meeting of Shareholders
We expect each member of the Board to attend our annual meetings of shareholders except for absences due to causes beyond the reasonable control of the trustee. All then-current members of our Board attended the 2017 annual meeting of shareholders. Ms. Sullivan did not join our Board until after the 2017 annual meeting of shareholders.
Board Evaluations and Refreshment
As described in our Corporate Governance Guidelines, it is our general policy that no trustee having attained the age of 75 years shall be nominated for re-election or re-appointment to the Board, although the Board may waive this policy in individual cases. In addition, as described above, the Nominating and Corporate Governance Committee annually facilitates the assessment of the effectiveness and performance of individual committees and our Board as a whole. The key areas of focus for the evaluation are Board operations, Board accountability and committee performance. The results of the evaluation are reviewed with each respective committee and the full Board.
| 2018 Proxy Statement | 11 |
CORPORATE GOVERNANCE |
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, available on our website at www.pennymac-reit.com, which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of our business. This code is applicable to all of our officers and trustees, as well as to the employees, officers and directors of our Manager and our Servicer when such individuals are acting for or on our behalf.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines, available on our website at www.pennymac-reit.com, which, in conjunction with the charters and key practices of the committees of our Board, provide the framework for the governance of our Company. In connection with the change to a majority voting standard in our recently adopted Second Amended and Restated Bylaws, our Board also amended and restated our Corporate Governance Guidelines to provide that if any nominee for trustee fails to receive a majority vote for election or re-election, if so required, the trustee will promptly tender to the Board for its consideration his or her offer to resign from the Board.
Corporate Sustainability and Social Responsibility
We strive not only to drive high operational and financial performance but also to serve a greater social purpose through our core businesses, which are centered around homeownership. As a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets, we, through our Manager and our Servicer, are able to serve our customers throughout the country by facilitating home purchases, refinancings that make homes more affordable, and, when necessary, loss mitigation alternatives, designed to avoid foreclosure and keep our customers and their families in their homes.
We also encourage and support principles of corporate sustainability through Board governance best practices, in our operations and throughout our communities. We believe these principles promote the sustainable, long-term growth of our organization for the benefit of our shareholders and the housing industry for the benefit of our customers, improving the environment in which we live. We hold ourselves and our Manager accountable for managing our social, environmental, and economic impact through a number of initiatives.
The diversity of our Board results from our belief that having a Board that represents diverse experiences, backgrounds and insights is essential in promoting our long-term sustainable growth. Our Manager seeks to operate its facilities in an environmentally sustainable manner that manages our impact on the environment by investing in sustainable products and services, committing to increased waste recycling, focusing on energy efficiency and engaging in conservative water consumption practices. In the same way that we set the highest of standards for our business operations, we and our Manager apply the highest corporate responsibility standards and rigorous performance goals to these efforts. Our Manager believes that building a diverse and inclusive, high-performing workforce where its employees bring diverse perspectives and varied experiences to work every day allows us to develop better and more innovative solutions for our customers. Our Manager also partnered with a third party to establish a comprehensive, fully integrated wellness program designed to enhance the productivity of its employees.
We believe that every small effort is a step in the right direction, and we are confident that our and our Managers corporate sustainability initiatives have made and will continue to make a positive impact both in and beyond our business.
Communications with our Board of Trustees
Our shareholders and other interested persons may send written communications to the Board, committees of the Board and individual trustees (including our independent lead trustee or the independent/non-management trustees as a group) by mailing those communications to:
[Specified Addressee]
c/o PennyMac Mortgage Investment Trust
3043 Townsgate Road
Westlake Village, California 91361
Email: investorrelations@pnmac.com
Attention: Investor Relations
Generally, these communications are sent by us directly to the specified addressee. Any communication that is primarily commercial, offensive, illegal or otherwise inappropriate, or does not substantively relate to the duties and responsibilities of our Board, may not be forwarded.
12 | | 2018 Proxy Statement |
PROPOSAL I ELECTION OF TRUSTEES |
Proposal I Election of Trustees
We have three classes of trustees. The Board has nominated Stanford L. Kurland, David A. Spector and Randall D. Hadley for election as Class III trustees, and each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If our Class III trustees are elected at this years Annual Meeting, they will serve until our annual meeting of shareholders in 2021 and their successors have been duly elected and qualified. Our Class I trustees will serve until our annual meeting of shareholders in 2019 and their successors have been duly elected and qualified. Our Class II trustees will serve until our annual meeting of shareholders in 2020 and their successors have been duly elected and qualified.
Because this is considered an uncontested election under the Companys Amended and Restated Bylaws, a nominee for trustee is elected to the Board if the votes cast for such nominees election exceed the votes cast against such nominees election. Abstentions will not affect the election of trustees. In tabulating the voting results for the election of trustees, only FOR and AGAINST votes are counted. If an incumbent trustee fails to receive a majority of the vote for re-election, such trustee shall tender his or her resignation as provided in the Companys Corporate Governance Guidelines. The Nominating and Corporate Governance Committee of the Board will then act on an expedited basis to determine whether to accept the trustees tendered resignation and will submit such recommendation for prompt consideration by the Board. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee and the Board will consider any factors they deem relevant.
OUR BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR STANFORD L. KURLAND, DAVID A. SPECTOR AND RANDALL D. HADLEY AS TRUSTEES TO SERVE UNTIL OUR 2021 ANNUAL MEETING OF SHAREHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
The following paragraphs provide the name and age (as of April 23, 2018) of each trustee, as well as each trustees business experience over the last five years or more. Immediately following the description of each trustees business experience is a description of the particular experience, skills and qualifications that were instrumental in the Nominating and Corporate Governance Committees determination that the trustee should serve on our Board.
Name
|
Age
|
Position
| ||||
Stanford L. Kurland
|
|
65
|
|
Trustee, Executive Chairman
| ||
David A. Spector
|
|
55
|
|
Trustee
| ||
Scott W. Carnahan
|
|
64
|
|
Trustee
| ||
Preston DuFauchard
|
|
61
|
|
Trustee
| ||
Randall D. Hadley
|
|
74
|
|
Independent Lead Trustee
| ||
Nancy McAllister
|
|
58
|
|
Trustee
| ||
Stacey D. Stewart
|
|
54
|
|
Trustee
| ||
Marianne Sullivan
|
|
52
|
|
Trustee
| ||
Frank P. Willey
|
|
64
|
|
Trustee
|
| 2018 Proxy Statement | 13 |
PROPOSAL I ELECTION OF TRUSTEES |
Class III Trustees If Elected, Term to Expire in 2021
STANFORD L. KURLAND
|
Mr. Kurland has been a member of our Board since our formation in May 2009 and has been our Executive Chairman since January 2017. Prior thereto, he had been our chairman of the board and chief executive officer from May 2009 through December 2016. Mr. Kurland also has been the executive chairman of PennyMac Financial Services, Inc., or PFSI, since January 2017 and, prior thereto, had been chairman of the board and chief executive officer from February 2013 through December 2016. Mr. Kurland served as the chief executive officer of Private National Mortgage Acceptance Company, LLC, or PNMAC, from May 2013 through December 2016, and, prior thereto, served as chairman of the board and chief executive officer from founding the company in January 2008 to May 2013. Our Manager, PCM, and PNMAC are controlled subsidiaries of PFSI. Prior to the formation of PNMAC, Mr. Kurland served as a director and, from January 1979 to September 2006, held several executive positions, including president, chief financial officer and chief operating officer, at Countrywide Financial Corporation, or Countrywide, a diversified financial services company. Mr. Kurland holds a BS from California State University, Northridge. We believe Mr. Kurland is qualified to serve on our Board because of his experience as our previous chief executive officer and as an accomplished financial services executive with more than 37 years of experience in the mortgage banking arena. | |
|
||
Board Member Since: 2009 Age: 65
|
||
DAVID A. SPECTOR
|
Mr. Spector has been a member of our Board since our formation in May 2009 and has been our President and Chief Executive Officer since January 2017. He served as our executive managing director, president and chief operating officer from February 2016 through December 2016 and, prior thereto, as president and chief operating officer since May 2009. He also has been the president and chief executive officer of PFSI since January 2017 and, prior thereto, had been executive managing director, president and chief operating officer of PFSI since February 2016. Prior thereto, Mr. Spector had been president and chief operating officer of PFSI from February 2013 to February 2016. Mr. Spector also has been the president and chief executive officer of PNMAC since January 2017 and, prior thereto, served in a variety of executive positions at PNMAC from January 2008 through December 2016. In addition, Mr. Spector has been a member of the board of PFSI since its formation. Prior to joining PNMAC, Mr. Spector was co-head of global residential mortgages for Morgan Stanley, a global financial services firm, based in London. Before joining Morgan Stanley in September 2006, Mr. Spector was the senior managing director, secondary marketing, at Countrywide, where he was employed from May 1990 to August 2006. Mr. Spector holds a BA from the University of California, Los Angeles. We believe Mr. Spector is qualified to serve on our Board because of his experience as a member of our executive management team and as an experienced executive with broad mortgage banking expertise in portfolio investments, interest rate and credit risk management, and capital markets activity that includes pricing, trading and hedging. | |
|
||
Board Member Since: 2009 Age: 55
|
||
14 | | 2018 Proxy Statement |
PROPOSAL I ELECTION OF TRUSTEES |
RANDALL D. HADLEY Independent Lead Trustee
|
Mr. Hadley has been a member of our Board since August 2009. Mr. Hadley is also our independent lead trustee. Mr. Hadley was a CPA and partner of Grant Thornton LLP, an accounting firm, including nine years as regional director of professional standards, before retiring in July 2003. He advised both public and private entities while at Grant Thornton LLP and provided various consulting services to the accounting firm following his retirement through July 2011. Mr. Hadley holds a BS from Wright State University. We believe Mr. Hadley is qualified to serve on our Board because he is a financial and accounting expert with over 40 years of wide-ranging accounting and auditing experience, including extensive experience in mortgage banking. | |
|
||
Board Member Since: 2009 Age: 74
|
||
Committees: Audit (Chair) Related Party Matters |
Class I Trustees Term to Expire in 2019
SCOTT W. CARNAHAN
|
Mr. Carnahan has been a member of our Board since August 2009. Mr. Carnahan has served as senior managing director at FTI Consulting, Inc., a global business advisory firm, since May 2014. Prior thereto, Mr. Carnahan had provided financial and accounting consulting services to various financial institutions since April 2007. From 1992 to 1998 and from 2000 to March 2007, Mr. Carnahan was an audit and consulting partner at the professional services firm of KPMG LLP. Mr. Carnahan holds a BA and an MBA from the University of California, Irvine and is a CPA. We believe Mr. Carnahan is qualified to serve on our Board because he has both accounting and financial expertise, due to his experience at KPMG LLP, as well as a fundamental understanding of the mortgage lending business. | |
|
||
Board Member Since: 2009 Age: 64
|
||
Committees: Audit Finance Related Party Matters (Chair) |
| 2018 Proxy Statement | 15 |
PROPOSAL I ELECTION OF TRUSTEES |
MARIANNE SULLIVAN
|
Ms. Sullivan has been a member of our Board since September 2017. Since January 2017, Ms. Sullivan has served as founder and chief strategy consultant of OptimX Advisors, Inc., a consulting firm to the U.S. mortgage industry. Prior thereto, Ms. Sullivan served for 24 years in a variety of executive positions including senior vice president, single-family strategic initiatives and business capabilities, and senior vice president, single-family chief risk officer at Fannie Mae, a government-sponsored enterprise (GSE) that partners with lenders to create housing opportunities for families across the country. Ms. Sullivan received a B.S. degree in Business Administration from Georgetown University. We believe Ms. Sullivan is qualified to serve on our Board because she is an experienced executive with a strong business background in the housing finance sector. | |
|
||
Board Member Since: 2017 Age: 52
|
||
Committees: Audit Nominating and Corporate Risk |
FRANK P. WILLEY
|
Mr. Willey has been a member of our Board since August 2009. Since February 2009, Mr. Willey has been a non-equity partner at the law firm of Hennelly & Grossfeld LLP. From 1984 to 2016, Mr. Willey held a variety of executive positions, including president and general counsel, at Fidelity National Financial, Inc., or Fidelity, a provider of title insurance, specialty insurance, claims management services and information services. Mr. Willey currently serves as a director of Cannae Holdings, Inc., a diversified holding company, and Winter Sports, Inc., a ski resort operator. He formerly served on the board of Fidelity. Mr. Willey holds a BS from LeMoyne College and a JD from Albany Law School. We believe Mr. Willey is qualified to serve on our Board because he is an experienced executive and director with a strong business and legal background in the financial services industry. | |
|
||
Board Member Since: 2009 Age: 64
|
||
Committees: Compensation (Chair) Nominating and Corporate Related Party Matters |
16 | | 2018 Proxy Statement |
PROPOSAL I ELECTION OF TRUSTEES |
Class II Trustees Term to Expire in 2020
PRESTON DUFAUCHARD
|
Mr. DuFauchard has been a member of our Board since November 2012. Mr. DuFauchard is currently retired. From April 2016 until his retirement in February 2017, he served as general counsel of Robertson Stephens, a global investment advisory firm for high net worth individuals, family offices, institutions and corporations. Prior thereto, Mr. DuFauchard had served as an independent consultant since January 2012. From 2006 through December 2011, Mr. DuFauchard served as the commissioner of the California Department of Corporations. From 1997 to 2006, Mr. DuFauchard was employed at Bank of America Corporation, a diversified financial services firm, where he held the title of assistant general counsel. Mr. DuFauchard holds a BA from Stanford University and a JD from the University of California, Berkeley, Boalt School of Law. We believe Mr. DuFauchard is qualified to serve on our Board because of his strong business experience and leadership as the chief executive officer of a state agency, his extensive legal and regulatory background, and his understanding of the mortgage banking business. | |
|
||
Board Member Since: 2012 Age: 61
|
||
Committees: Finance Related Party Matters Risk (Chair) |
NANCY MCALLISTER
|
Ms. McAllister has been a member of our Board since November 2012. Ms. McAllister has served as a senior advisor of Star Mountain Capital, LLC and Star Mountain Stimulus Fund, L.P., private equity firms that invest in small and medium size businesses, since April 2013. From November 2008 through May 2011, Ms. McAllister served as a managing director in the financial institutions group of Credit Suisse Securities (USA) LLC, a diversified financial services firm. From 1991 to September 2008, Ms. McAllister was employed by Lehman Brothers, Inc., where she held a variety of executive positions, including managing director and co-head of the depository institutions and debt capital markets groups. Ms. McAllister has served on the board of directors of Peoples United Financial, Inc., a diversified financial services company, since September 2013. Ms. McAllister holds a BA from the University of Virginia. We believe Ms. McAllister is qualified to serve on our Board because she is a seasoned business executive with deep knowledge of the capital markets and significant experience in financial services, including investment banking. | |
|
||
Board Member Since: 2012 Age: 58
|
||
Committees: Compensation Finance (Chair) Risk |
| 2018 Proxy Statement | 17 |
PROPOSAL I ELECTION OF TRUSTEES |
STACEY D. STEWART
|
Ms. Stewart has been a member of our Board since August 2009. She has served as president of the March of Dimes Foundation, a leading nonprofit organization, since November 2016. From June 2009 to November 2016, Ms. Stewart served in a variety of executive positions, including president of United States operations and executive vice president for Community Impact Leadership and Learning, at United Way Worldwide, the worlds largest charitable organization. From February 2007 to April 2009, Ms. Stewart was a senior vice president of Fannie Mae, a government-sponsored enterprise that supports liquidity and stability in the secondary mortgage market. Ms. Stewart holds an AB from Georgetown University and an MBA from the University of Michigan. We believe Ms. Stewart is qualified to serve on our Board because of her strong experience in the mortgage sector and proven leadership of charitable organizations, the primary focus of which is housing and homeownership within underprivileged communities. | |
|
||
Board Member Since: 2009 Age: 54
|
||
Committees: Compensation Nominating and Corporate |
Non-Management Trustee Compensation
The Compensation Committee reviews and recommends to our Board the form and level of trustee compensation. The compensation program for our non-management trustees is intended to be competitive and fair so that we can attract the best talent to our Board, and recognize the time and effort required of a trustee given the size and complexity of our operations. In addition to cash compensation, we provide equity grants and have share ownership guidelines to align the trustees interests with our shareholders interests and to motivate our trustees to focus on our long-term growth and success. Management trustees who are executive officers of our Manager or its affiliates are not paid any fees for serving on our Board or for attending Board meetings.
The following table summarizes the annual retainer fees paid to our non-management trustees during Fiscal 2017:
Base Annual Retainer, all non-management trustees
|
$
|
75,000
|
| |
Base Annual Retainer, independent lead trustee
|
$
|
20,000
|
| |
Base Annual Retainer, all non-management committee members:
|
||||
Audit Committee
|
$
|
7,750
|
| |
Compensation Committee
|
$
|
7,750
|
| |
Finance Committee
|
$
|
7,750
|
| |
Nominating and Corporate Governance Committee
|
$
|
5,750
|
| |
Related Party Matters Committee
|
$
|
5,750
|
| |
Risk Committee
|
$
|
7,750
|
| |
Additional Annual Retainer, all committee chairs:
|
||||
Audit Committee
|
$
|
10,750
|
| |
Compensation Committee
|
$
|
10,750
|
| |
Finance Committee
|
$
|
10,750
|
| |
Nominating and Corporate Governance Committee
|
$
|
7,750
|
| |
Related Party Matters Committee
|
$
|
7,750
|
| |
Risk Committee
|
$
|
10,750
|
|
18 | | 2018 Proxy Statement |
PROPOSAL I ELECTION OF TRUSTEES |
In addition, our trustees are eligible to receive certain types of equity-based awards under our 2009 Plan. During Fiscal 2017, each of Messrs. Carnahan, DuFauchard, Hadley and Willey and Mmes. McAllister and Stewart received a grant of 5,105 time-based restricted share units, or RSUs, on February 23, 2017 with a grant date fair value of approximately $87,000. These RSUs vest in three (3) equal annual installments beginning on the one (1) year anniversary of the date of the grant and entitle the recipient thereof to receive dividend equivalents during the vesting period. Prior to the vesting of an RSU, such RSU is generally subject to forfeiture upon termination of service to us.
In addition, each independent trustee newly elected or appointed to our Board generally is entitled to receive a one-time initial RSU grant with a grant date fair value of approximately $87,000 in RSUs. Accordingly, upon the appointment of Ms. Sullivan to our Board on September 26, 2017, she received a one-time initial RSU grant with a grant date fair value of approximately $35,753 (which was the prorated amount based on days of service during the annual equity award cycle). Such RSUs will vest in equal installments on the first, second and third anniversaries of the date of grant and do not entitle the recipient thereof to receive dividend equivalents during the vesting period. Further, all members of our Board will be reimbursed for their reasonable out of pocket costs and expenses in attending all meetings of our Board and its committees and certain other Company-related functions.
Policy Regarding Receipt of Shares in Lieu of Cash Trustee Fees. During 2014, our Board adopted a policy whereby non-management trustee fees may be paid in cash or common shares at the election of each non-management trustee. The number of common shares delivered in lieu of any cash payment of trustee fees shall be equivalent in value to the amount of forgone trustee fees divided by the fair market value (as defined in our 2009 Plan) of a common share on the day on which the trustee fees otherwise would have been paid in cash to the non-management trustee, rounded down to the nearest whole share. None of our trustees have elected to be paid in common shares.
Double-Trigger Change in Control. Prior to vesting, an RSU is generally subject to forfeiture upon termination of service to us. Upon a change in control (as defined in our 2009 Plan) or upon termination of our management agreement other than for cause (as defined in our management agreement), any RSU held by non-management trustees not previously vested shall become fully vested and will be settled in our common shares. The term of our management agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
2017 Trustee Compensation Table
The table below summarizes the compensation earned by each non-management trustee who served on our Board for Fiscal 2017.
Name(1)
|
Fees Earned or Paid in Cash
|
Stock
|
Total
|
|||||||||
Scott W. Carnahan
|
|
104,000
|
|
|
87,000
|
|
|
191,000
|
| |||
Preston DuFauchard
|
|
92,966
|
|
|
87,000
|
|
|
179,966
|
| |||
Randall D. Hadley
|
130,703 |
|
87,000
|
|
|
217,703
|
| |||||
Clay A. Halvorsen(4)
|
|
34,038
|
|
|
87,000
|
|
|
121,038
|
| |||
Nancy McAllister
|
|
109,000
|
|
|
87,000
|
|
|
196,000
|
| |||
Stacey D. Stewart
|
|
96,250
|
|
|
87,000
|
|
|
183,250
|
| |||
Marianne Sullivan(5)
|
|
22,945
|
|
|
35,753
|
|
|
58,698
|
| |||
Frank P. Willey
|
|
105,000
|
|
|
87,000
|
|
|
192,000
|
|
(1) | Mr. Kurland, our Executive Chairman, and Mr. Spector, a trustee and our President and Chief Executive Officer, are not included in this table as they are officers of our Company and thus receive no additional compensation for their services as trustees. Messrs. Kurland and Spector received compensation as officers of our Company for Fiscal 2017 as shown in the 2017 Summary Compensation Table. |
(2) | Reflects fees earned by the trustee in Fiscal 2017, whether or not paid in such year. |
(3) | Reflects the full grant date fair value, as determined in accordance with the Financial Accounting Standards Boards Accounting Standards Codification Topic 718, CompensationStock Compensation, or ASC 718, of RSUs granted to Messrs. Carnahan, DuFauchard, Hadley, Halvorsen, and Willey and Mmes. McAllister and Stewart on February 23, 2017, and to Ms. Sullivan on September 26, 2017. For more information on the assumptions used in our estimates of value, please refer to Note 25Share-Based Compensation Plans in our Annual Report on Form 10-K, filed on March 1, 2018. As of December 31, 2017, Messrs. Carnahan, DuFauchard, Hadley and Willey and Mms. McAllister and Stewart held 11,213 RSUs and Ms. Sullivan held 2,072 RSUs. |
(4) | On April 27, 2017, Mr. Halvorsen resigned from our Board, effective immediately, and forfeited all RSUs granted to him during Fiscal 2017. |
(5) | Reflects a pro rata portion of the one-time initial RSU grant to Ms. Sullivan when she joined our Board, effective September 26, 2017. |
| 2018 Proxy Statement | 19 |
PROPOSAL I ELECTION OF TRUSTEES |
Non-Management Trustee Share Ownership Guidelines
Non-management trustees are subject to robust share ownership guidelines. During Fiscal 2017, our Board increased its non-management trustee share ownership guidelines whereby each such trustee now is expected to hold common shares and unvested RSUs with an aggregate market value equal to at least five (5) times the base annual retainer. Previously, our non-management trustees were required to hold common shares and unvested RSUs with an aggregate market value equal to $175,000. Non-management trustees are expected to meet the ownership guidelines within five years from the date of appointment or election to our Board. Each non-management trustee who has been a member of our Board for five years or more is in compliance with our share ownership guidelines. The Nominating and Corporate Governance Committee will annually review each trustees progress toward meeting the share ownership guidelines.
20 | | 2018 Proxy Statement |
AUDIT MATTERS |
The Board of Trustees has determined that all of the members of the Audit Committee meet the independence and experience requirements of The New York Stock Exchange, or the NYSE, and that Messrs. Hadley and Carnahan are audit committee financial experts within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, and the NYSE.
The Audit Committee met eight times in 2017. The Audit Committees agenda is established by the Chairman of the Audit Committee. The Audit Committee engaged Deloitte & Touche LLP, or Deloitte, as the Companys independent registered public accounting firm and reviewed with the Companys Chief Financial Officer and Deloitte the overall audit scope and plans, the results of the external audit examination, evaluations by the independent registered public accounting firm of the Companys internal controls and the quality of its financial reporting.
The Audit Committee has reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee also discussed with the Companys independent registered public accounting firm other matters required to be discussed by a registered public accounting firm with the Audit Committee under applicable standards of the Public Company Accounting Oversight Board, or the PCAOB, the Audit Committee received and discussed with Deloitte its annual written report on its independence from the Company and its management, which is made pursuant to applicable requirements of the PCAOB, and considered with Deloitte whether the provision of non-audit services is compatible with its independence.
In performing all of these functions, the Audit Committee acts only in an oversight capacity and, necessarily, in its oversight role, the Audit Committee relies on the work and assurances of the Companys management, which has the primary responsibility for financial statements and reports, and of the Companys independent registered public accounting firm, which, in its report, expresses an opinion on the conformity of the Companys annual financial statements to generally accepted accounting principles and on the effectiveness of its internal control over financial reporting as of year-end.
In reliance on these reviews and discussions, and the report of Deloitte, the Audit Committee recommended to the Board of Trustees, and the Board of Trustees approved, the inclusion of the Companys audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 1, 2018.
The foregoing report has been furnished by the current members of the Audit Committee:
Randall D. Hadley, Chairman
Scott W. Carnahan
Marianne Sullivan
| 2018 Proxy Statement | 21 |
AUDIT MATTERS |
Relationship with Independent Registered Public Accounting Firm
In addition to performing the audits of our financial statements in Fiscal 2017 and Fiscal 2016, Deloitte provided other audit-related and non-audit-related services for us during these years.
Fees to Registered Public Accounting Firm for 2017 and 2016
The following table shows the fees billed by Deloitte for the audit and other services it provided to us in respect of Fiscal 2017 and Fiscal 2016.
2017
|
2016
|
|||||||||
Audit Fees(1)
|
$
|
2,182,630
|
|
$
|
2,145,371
|
|
||||
Audit-Related Fees(2)
|
|
148,025
|
|
|
146,700
|
|
||||
Tax Fees(3)
|
|
219,291
|
|
|
186,811
|
|
||||
All Other Fees(4)
|
|
|
|
|
65,000
|
|
||||
|
|
|
|
|||||||
Total
|
$
|
2,549,946
|
|
$
|
2,543,882
|
|
(1) | Audit Fees consist of fees for professional services rendered during the audit of our annual consolidated financial statements and our internal control over financial reporting, for the reviews of the consolidated financial statements included in our quarterly reports on Form 10-Q, and the audit of the annual financial statements of certain of our subsidiaries. |
(2) | Audit-Related Fees consist of fees for professional services provided for the review of our automatic shelf registration statement on Form S-3, including any amendments, the issuance of comfort letters and consents in connection with SEC filings and other compliance related testing. |
(3) | Tax Fees consist of fees for professional services rendered for tax compliance, tax planning and tax advice. |
(4) | All Other Fees consist of certain agreed upon procedures related to certain of our financing transactions. |
Pre-Approval Policies and Procedures
The Audit Committee approved all services performed by Deloitte during Fiscal 2017 in accordance with applicable SEC requirements. The Audit Committee has also pre-approved the use of Deloitte for certain audit-related and non-audit-related services, setting a specific limit on the amount of such services that we may obtain from Deloitte before additional approval is necessary. In addition, the Audit Committee has delegated to the chair of the Audit Committee the authority to approve both audit-related and non-audit-related services provided by Deloitte, provided that the chair will present any decision to the full Audit Committee for ratification at its next scheduled meeting.
22 | | 2018 Proxy Statement |
PROPOSAL II RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
Proposal IIRatification of Appointment of
Independent Registered Public Accounting Firm
The Audit Committee is presenting a proposal to ratify its appointment of our independent registered public accounting firm, Deloitte & Touche LLP and its affiliated entities, or Deloitte, which has served as our independent registered public accounting firm since our formation in May 2009. During this time, Deloitte has performed accounting and auditing services for us. We expect that representatives of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. If the appointment of Deloitte is not ratified, the Audit Committee will reconsider the appointment.
OUR BOARD OF TRUSTEES AND OUR AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.
| 2018 Proxy Statement | 23 |
SECURITY OWNERSHIP INFORMATION |
Security Ownership Information
Security Ownership of Officers and Trustees
The following table sets forth certain information as of the record date relating to the beneficial ownership of our common shares by (1) each of our named executive officers, (2) each of our current trustees and trustee nominees, and (3) all of our current trustees and executive officers as a group. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.
Common Shares |
||||||||||||
Executive Officers and Trustees
|
Number
|
Percentage
|
||||||||||
Stanford L. Kurland(2)(3)
|
781,086 |
|
1.28
|
%
|
||||||||
David A. Spector
|
144,968 |
|
*
|
|
||||||||
Scott W. Carnahan
|
55,187 |
|
*
|
|
||||||||
Preston DuFauchard
|
16,331 |
|
*
|
|
||||||||
Randall D. Hadley(4)
|
25,339 |
|
*
|
|
||||||||
Nancy McAllister
|
22,955 |
|
*
|
|
||||||||
Stacey D. Stewart
|
15,413 |
|
*
|
|
||||||||
Marianne Sullivan(5)
|
8,763 | * | ||||||||||
Frank P. Willey
|
65,339 |
|
*
|
|
||||||||
Andrew S. Chang
|
64,621 |
|
*
|
|
||||||||
Vandad Fartaj
|
69,013 |
|
*
|
|
||||||||
Doug Jones
|
49,735 |
|
*
|
|
||||||||
All trustees, trustee nominees and executive officers as a group (14 persons)
|
1,498,315 |
|
2.46
|
%
|
* | Represents less than 1.0% of the common shares outstanding as of the record date. |
(1) | Based on 60,882,954 common shares outstanding as of the record date on a fully diluted basis. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. A person is deemed to be the beneficial owner of any common shares if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days of the record date. As used herein, voting power is the power to vote or direct the voting of shares and investment power is the power to dispose or direct the disposition of shares. None of the shares have been pledged as security. |
(2) | Includes 157,290 common shares owned by the Kurland Revocable Trust. |
(3) | Includes 6,000 common shares owned by the Kurland Family Foundation, as to which Mr. Kurland disclaims any beneficial interest. |
(4) | Includes 8,000 common shares owned by the Randall and Maureen Hadley Family 2001 Trust. |
(5) | Includes 6,112 common shares owned by the Marianne E. Sullivan Revocable Trust and 2,651 common shares held in an Individual Retirement Account. |
24 | | 2018 Proxy Statement |
SECURITY OWNERSHIP INFORMATION |
Security Ownership of Other Beneficial Owners
The following table sets forth certain information relating to the beneficial ownership of our common shares by each person or entity known to our Company to be the beneficial owner of more than five percent of our common shares, based on our review of publicly available statements of beneficial ownership filed with the SEC on Schedule 13G as of the record date.
Name and Address of Beneficial Owner
|
Number of
|
Percentage of
| ||||||||
BlackRock, Inc.(2) 55 East 52nd
Street New York, New York 10055
|
|
9,708,804
|
|
|
15.95
|
%
| ||||
The Vanguard Group, Inc.(3) 100 Vanguard Blvd. Malvern, Pennsylvania 19355
|
|
5,196,566
|
|
|
8.54
|
%
| ||||
Goldman Sachs Asset Management(4) 200 West Street New York, New York 10282
|
|
3,315,169
|
|
|
5.45
|
%
|
(1) | The Percentage of Class reported in this column has been calculated based upon 60,882,954 common shares outstanding as of the record date, and may differ from the Percentage of Class reported in statements of beneficial ownership filed with the SEC. |
(2) | As reported in Amendment No. 7 to Schedule 13G filed with the SEC on March 8, 2018 by BlackRock, Inc. In the Schedule 13G amendment, BlackRock, Inc. disclosed that it had the sole voting power over 9,578,504 common shares and sole dispositive power over 9,709,373 common shares as of February 28, 2018. |
(3) | As reported in Amendment No. 4 to Schedule 13G filed with the SEC on February 9, 2018 by The Vanguard Group, Inc., or Vanguard. In the Schedule 13G amendment, Vanguard disclosed that it had the sole voting power over 72,261 common shares, shared voting power over 9,206 common shares, sole dispositive power over 5,119,976 common shares and shared dispositive power over 76,590 common shares as of December 31, 2017. |
(4) | As reported in Schedule 13G filed with the SEC on February 5, 2018 by Goldman Sachs Asset Management, or Goldman Sachs. In the Schedule 13G, Goldman Sachs disclosed that it had shared voting power over 3,189,018 common shares and shared dispositive power over 3,315,169 common shares as of December 31, 2017. |
| 2018 Proxy Statement | 25 |
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION |
Executive Officers and Executive Compensation
The following sets forth certain information with respect to our current executive officers:
Name
|
Age
|
Position Held with the Company
| ||
Stanford L. Kurland
|
65
|
Trustee, Executive Chairman of the Board of Trustees
| ||
David A. Spector
|
55
|
Trustee, President and Chief Executive Officer
| ||
Andrew S. Chang
|
40
|
Senior Managing Director and Chief Financial Officer
| ||
Vandad Fartaj
|
43
|
Senior Managing Director and Chief Investment Officer
| ||
Doug Jones
|
61
|
Senior Managing Director and Chief Mortgage Banking Officer
| ||
Anne D. McCallion
|
63
|
Senior Managing Director and Chief Enterprise Operations Officer
| ||
David M. Walker
|
62
|
Senior Managing Director and Chief Risk Officer
|
Biographical information for Messrs. Kurland and Spector is provided above under the caption Proposal I Election of Trustees. Certain biographical information for the other executive officers is set forth below.
Andrew S. Chang. Mr. Chang has been our Senior Managing Director and Chief Financial Officer since January 2017. Prior thereto, he served as our senior managing director and chief business development officer from February 2016 through December 2016 and as our chief business development officer from our formation in May 2009 to February 2016. Mr. Chang also has served in a variety of similar executive positions at PNMAC since May 2008. Mr. Chang is responsible for overseeing our financial management, reporting and controls and tax management, as well as our corporate development and investor relations activities. Prior to joining PNMAC, from June 2005 to May 2008, Mr. Chang was employed at BlackRock, Inc., or BlackRock, a global investment management firm, and a senior member in its advisory services practice, specializing in financial strategy and risk management for banks and mortgage companies. Mr. Chang is an experienced financial services executive with substantial experience in corporate finance and mortgage banking.
Vandad Fartaj. Mr. Fartaj has been our Senior Managing Director and Chief Investment Officer since February 2016. Prior thereto, he served as our chief investment officer from March 2010 to February 2016. Mr. Fartaj also has served in a variety of similar executive positions at PNMAC since April 2008. Mr. Fartaj is responsible for all capital markets and investment-related activities, including the development and execution of investment strategies, secondary marketing, hedging activities and capital markets strategies with government-sponsored enterprises. In addition, Mr. Fartaj is responsible for developing and managing relationships with Wall Street broker-dealers and fixed income investors. Prior to joining PNMAC, from November 1999 to April 2008, Mr. Fartaj was employed in a variety of positions at Countrywide Securities Corporation, including managing the strategy and execution of the whole loan conduit. Mr. Fartaj is an experienced mortgage banking executive with substantial experience in capital markets, mortgage-related investments, and interest rate and credit risk management.
Doug Jones. Mr. Jones has been our Senior Managing Director and Chief Mortgage Banking Officer since January 2017 and the president of our Servicer since March 2017. Prior thereto, he served as our senior managing director and chief institutional mortgage banking officer from February 2016 through December 2016, as our chief institutional mortgage banking officer from February 2015 to February 2016 and as our chief correspondent lending officer from August 2011 to February 2015. Mr. Jones also has served in a variety of similar executive positions at PNMAC since March 2012. Mr. Jones is responsible for all business activities relating to our loan production and loan servicing operations. Prior to joining PNMAC, Mr. Jones worked in several executive positions, including senior managing director, correspondent lending, at Countrywide (and Bank of America Corporation, as its successor) from 1997 until 2011, where he was responsible for managing and overseeing correspondent and warehouse lending operations. Mr. Jones is an experienced mortgage banking executive with significant experience in the correspondent production and warehouse lending businesses.
Anne D. McCallion. Ms. McCallion has been our Senior Managing Director and Chief Enterprise Operations Officer since January 2017. Prior thereto, she served as our senior managing director and chief financial officer from February 2016 through December 2016 and as our chief financial officer from May 2009 to February 2016. Ms. McCallion also has served in a variety of similar executive positions at PNMAC since May 2009. Ms. McCallion is responsible for overseeing our enterprise operations function and has management responsibility for legal, regulatory relations, human resources, technology infrastructure and corporate administration. Prior to joining PNMAC, Ms. McCallion was employed by Countrywide (and Bank of America Corporation, as its successor), where she worked in a variety of executive positions, including deputy chief financial officer and senior managing director, finance, from 1991 to 2008. Ms. McCallion is a seasoned executive with considerable experience in the financial and operational aspects of the mortgage banking business.
26 | | 2018 Proxy Statement |
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION |
David M. Walker. Mr. Walker has been our Senior Managing Director and Chief Risk Officer since February 2016. Prior thereto, he served as our chief risk officer from July 2015 to February 2016, as our chief credit and enterprise risk officer from May 2013 to July 2015, and as our chief credit officer from the time of our formation in May 2009 to May 2013. Mr. Walker also has served in a variety of similar executive positions at PNMAC since January 2008. Mr. Walker is responsible for enterprise risk management, credit risk management, mortgage compliance management and internal audit. From June 2002 to April 2007, Mr. Walker served in a variety of executive positions at Countrywide Bank, N.A., including chief credit officer and chief lending officer. From October 1992 to June 2002, Mr. Walker served in a variety of executive positions at Countrywide, including executive vice president of secondary marketing and managing director and chief credit officer. Mr. Walker is a seasoned financial services executive with significant experience in credit risk management.
| 2018 Proxy Statement | 27 |
REPORT OF THE COMPENSATION COMMITTEE |
Report of the Compensation Committee
Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee recommended that our Board of Trustees include the Compensation Discussion and Analysis in this Proxy Statement and our 2017 Annual Report on Form 10-K.
The Compensation Committee
Frank P. Willey, Chairman
Nancy McAllister
Stacey D. Stewart
28 | | 2018 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Discussion and Analysis
Table of Contents
This compensation discussion and analysis provides a detailed description of our executive compensation program and policies, the material compensation decisions made under such program and policies with respect to our named executive officers, and the material factors that were considered in making those decisions. This narrative discussion should be read together with the compensation tables and related disclosures set forth below.
Our named executive officers, consisting of our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executives during Fiscal 2017, were:
| Stanford L. Kurland, Executive Chairman of the Board of Trustees; |
| David A. Spector, Trustee, President and Chief Executive Officer; |
| Andrew S. Chang, Senior Managing Director and Chief Financial Officer; |
| Vandad Fartaj, Senior Managing Director and Chief Investment Officer; and |
| Doug Jones, Senior Managing Director and Chief Mortgage Banking Officer. |
Executive Summary of 2017 Compensation
Although our named executive officers are generally compensated by our Manager, we also provide them with compensation in the form of restricted share units, or RSUs, and performance-based restricted share units, or PSUs, which the Compensation Committee grants in its discretion under our 2009 Plan. In order to ensure that our executive compensation program remains generally consistent with market practices and focuses on long-term performance, in Fiscal 2016, we began granting PSUs that vest only upon the Companys satisfaction of performance measures tied to return on equity. We continued the practice of granting PSUs during Fiscal 2017.
RSU and PSU awards granted to our named executive officers are designed to align their interests with those of our shareholders by providing each named executive officer with an ownership or ownership-based interest in our Company and a stake in our long-term success. Our RSU and PSU awards are also designed to further motivate our named executive officers to achieve high Company and individual performance and reward them for such performance through a long-term incentive structure that does not encourage excessive risk taking. We also believe that directly compensating our named executive officers is appropriate given the risks and liability they undertake as named executive officers of a public company. We believe that our executive compensation program objectives have resulted in decisions regarding executive compensation that have appropriately encouraged growth in our businesses and the achievement of financial goals without excessive risk taking, thus benefiting our shareholders and generating long-term shareholder value.
| 2018 Proxy Statement | 29 |
COMPENSATION DISCUSSION AND ANALYSIS |
2017 Say-on-Pay Vote and Engagement with Shareholders
At our 2017 annual meeting, approximately 61% of votes cast by our shareholders supported our say-on-pay advisory vote on executive compensation while Institutional Shareholder Services, or ISS, recommended withhold votes for Compensation Committee members, Stacey D. Stewart and Nancy McAllister, as ISS did not believe that the Compensation Committee adequately responded to shareholder concerns from the 2016 say-on-pay advisory vote. In response, our Compensation Committee and our full Board discussed the results of the say-on-pay advisory vote results, and agreed that a targeted investor outreach effort was warranted in order to obtain specific feedback regarding our compensation practices.
Shareholder outreach and feedback is a critical component of our investor relations philosophy, and, in 2017, we continued to maintain a regular dialogue with our shareholders. Throughout the year, we engaged in conversations and meetings, including sell-side conferences, non-deal road shows and in-person or telephonic one-on-one meetings with our shareholder base. In response to the 2017 say-on-pay advisory vote on executive compensation and the trustee election results, our Compensation Committee, along with members of senior management, undertook a targeted investor outreach program. The purpose of the program was to solicit feedback from shareholders who voted against the proposal and understand the factors that informed their vote.
As part of this process, members of our senior management team contacted our top 20 shareholders who voted against the say-on-pay proposal during Fiscal 2017. Through this process, we had discussions with shareholders representing approximately 57% of our outstanding common shares that voted against our say-on-pay advisory vote. Our meetings and communications with these significant shareholders were positive and useful, and all such shareholders generally mentioned their positive views of investor outreach regarding compensation and governance practices.
In our discussions, shareholders mentioned several factors that influenced their votes. Most notable among such factors was the perceived lack of disclosures regarding the compensation paid to our named executive officers by our Manager and the expectation that a greater percentage of compensation paid to our named executive officers should be in the form of performance-based restricted share units, or PSUs. Shareholders also mentioned the ISS recommendation that shareholders vote against our 2017 say-on-pay advisory vote due to a perceived lack of disclosure regarding the compensation paid to our named executive officers by our Manager, which ISS believes precludes shareholders from making a fully informed say-on-pay vote. Most investors communicated to us that the ISS recommendation was one of several factors they considered in reaching a decision; however, due to the volume of proposals many of these firms address, ISS recommendations had significant influence on the decision-making process.
To address investor concerns, we have made several changes to our compensation disclosures and governance best practices, including the following:
| Enhanced the disclosures set forth in the Compensation Discussion and Analysis section of this Proxy Statement regarding the executive compensation paid to our named executive officers by our Manager; |
| Amended our 2009 Plan to require a one-year minimum vesting period for at least 95% of all equity awards granted pursuant to the 2009 Plan and to explicitly prohibit the repricing of stock options; |
| Adopted a clawback policy regarding recoupment of incentive compensation that applies to all of our named executive officers and any other officer whose title is senior managing director and higher; |
| Amended and restated our bylaws to provide for a majority voting standard in uncontested trustee elections with a plurality carve-out for contested trustee elections; |
| Amended our corporate governance guidelines to provide for the resignation of any trustee who fails to receive a majority vote in an uncontested election; and |
| Provided shareholders who have held at least 1% of our outstanding common shares for a period of at least one year with the concurrent right to amend the Companys bylaws by the affirmative vote of a majority of all votes entitled to be cast on a matter pursuant to such proposal. |
Executive Compensation Paid by our Manager and its Affiliates
We utilize an external management structure and have limited employees of our own; therefore, the management of our business and execution of our operations is performed on our behalf by our Manager pursuant to a management agreement. This external management structure allows us to operate with more limited infrastructure, which reduces overhead costs and provides certainty regarding the operating expenses required to run our business. Through our Manager, we have access to greater infrastructure and resources than we
30 | | 2018 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
might otherwise have if we were to internalize operations. Pursuant to the terms of our management agreement, our Manager earns a base management fee equal to the sum of (a) 1.5% per year of shareholders equity up to $2 billion, (b) 1.375% per year of shareholders equity in excess of $2 billion and up to $5 billion, and (c) 1.25% per year of shareholders equity in excess of $5 billion. Our Manager may also earn a performance incentive fee, both quarterly and in arrears, equal to: (a) 10% of the amount by which net income attributable to common shares of beneficial interest for the quarter exceeds (i) an 8% return on equity plus the high watermark (as defined under the heading Management Agreement in the Certain Relationships and Related Transactions section in this Proxy Statement), up to (ii) a 12% return on equity; plus (b) 15% of the amount by which net income for the quarter exceeds (i) a 12% return on equity plus the high watermark, up to (ii) a 16% return on equity; plus (c) 20% of the amount by which net income for the quarter exceeds a 16% return on equity plus the high watermark. Our Manager earned approximately $22.3 million in base management fees and $304,000 in performance incentive fees in Fiscal 2017 in connection with work performed under our management agreement.
Our named executive officers do not receive any compensation from us other than the equity awards described herein. Rather, our executive officers are employed by our Manager or one or more of its affiliates and, therefore, receive compensation from one of those entities. This is because an entire team of professionals at our Manager (in addition to our named executive officers) not only support our company but also work on a broad range of business activities for our Manager and its affiliates. While our Manager may use a portion of our management fee to compensate its executive officers, we do not specifically allocate any portion of the management fee to such compensation and the management agreement does not require any such allocation related to our Managers compensation arrangements with our named executive officers.
The following information relating to these compensation arrangements have been provided to us by our Manager.
Our Managers Executive Compensation Objectives and Philosophy
Our Manager, through its executive compensation program, seeks to:
| Create a pay-for-performance culture that rewards its executives for high company and individual performance; |
| Align the interests of its executives with those of its stockholders; |
| Facilitate the attraction, motivation and retention of highly talented executive leaders who will be crucial to its long-term success and ultimate sustainability; |
| Encourage its executives to focus on the achievement of our Managers annual and long-term business goals; and |
| Appropriately compensate its executives who also provide support of our company in our Managers role as our external manager. |
Our Manager aims to position the total compensation of its named executive officers at a level commensurate with the total compensation paid to other executives holding comparable positions at companies similar in industry, size, structure, scope and sophistication with which our Manager competes for executive talent.
Our Managers 2017 Executive Compensation Decisions
In setting compensation for its executives, including our named executive officers, our Manager takes into consideration various factors in determining the total compensation payable to its employees including the type, scope and level of responsibility of the executive, competitive market dynamics, and the individual contributions made by the executive to the success of our Manager. In making its determinations regarding compensation arrangements with our named executive officers, our Manager did not take into account the amount of the management fee we pay to our Manager. This is because a whole team of professionals at our Manager (including our named executive officers) supports our Company and these professionals not only support our efforts but also work on a broad range of activities for our Manager and its affiliates. Many of these activities are for our Managers own account or the accounts of its affiliated and other managed entities. To put this into context, the base management fees and performance incentive fees paid by us to our Manager represented approximately 2.4 percent of the $955 million in total net revenues of our Manager and its affiliates during fiscal 2017. As a consequence, no portion of the management fee paid to our Manager was directly allocated by our Manager to the compensation paid by our Manager to any of our named executive officers. Of the total compensation paid to our named executive officers by our Manager in Fiscal 2017, we estimate that approximately 13% was fixed (e.g., annual base salary) and approximately 87% was variable or incentive pay (e.g., bonus and equity awards).
| 2018 Proxy Statement | 31 |
COMPENSATION DISCUSSION AND ANALYSIS |
2017 Compensation Paid to our Named Executive Officers by our Manager (1)
The following table presents compensation paid to our named executive officers by our Manager during Fiscal 2017.
Name and Principal Position | Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
All Other Compensation ($)(2) |
Total ($) |
|||||||||||||||||||||
Stanford L. Kurland Executive Chairman of the Board of Directors |
2017 | 1,000,000 | 4,250,000 | 2,999,982 | 990,304 | 218,055 | 9,458,341 | |||||||||||||||||||||
David A. Spector President and Chief Executive Officer |
2017 | 741,667 | 3,000,000 | 1,566,578 | 495,152 | 174,603 | 5,977,999 | |||||||||||||||||||||
Andrew S. Chang Senior Managing Director and Chief Financial Officer |
2017 | 325,000 | 925,000 | 626,624 | 198,055 | 333,390 | 2,408,069 | |||||||||||||||||||||
Vandad Fartaj Senior Managing Director and Chief Capital Markets Officer |
2017 | 325,000 | 925,000 | 626,624 | 198,055 | 340,101 | 2,414,780 | |||||||||||||||||||||
Doug Jones Senior Managing Director and Chief Mortgage Banking Officer |
2017 | 448,958 | 1,500,000 | 783,280 | 247,576 | 327,210 | 3,307,024 |
(1) | For complete information regarding the executive compensation paid to our named executive officers by our Manager or its affiliates, shareholders should refer to the 2017 Summary Compensation Table contained in the Definitive Proxy Statement of PennyMac Financial Services, Inc., which was filed with the SEC on April 17, 2018. Information in this table reflects any compensation paid by our Manager to our named executive officers, not just that attributable to their work on our behalf. |
(2) | Includes the grant date fair value of restricted share units awarded by us to Messrs. Chang, Fartaj and Jones during Fiscal 2017, consistent with our Managers compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense. |
2017 Compensation Program Overview
During Fiscal 2017, we did not have employment agreements with our named executive officers, we did not provide pension or retirement benefits, perquisites or other personal benefits to our named executive officers, and we did not have arrangements to make payments to our named executive officers upon termination of our management agreement or in the event of a change in control of the Company. We utilized long-term incentive compensation in the form of equity-based awards, which we issue under our 2009 Plan as described herein.
Cash and Other Compensation
Our named executive officers and other personnel who conduct our business are employees of our Manager or one or more of its affiliates. Accordingly, we do not pay or accrue any salaries or cash bonuses to our named executive officers.
Equity-Based Compensation
The Compensation Committee may, from time to time pursuant to our 2009 Plan, grant our named executive officers certain equity-based awards, including RSUs, PSUs, and other awards based on our shares. These awards are designed to align the interests of our named executive officers with those of our shareholders, by allowing our named executive officers to share in the creation of value for our shareholders through capital appreciation and dividends. These awards provide a further benefit to us by enabling our Manager and Servicer to attract, motivate and retain talented individuals who are willing to undertake the risks and liability associated with serving as executive officers of a public company. These equity awards are generally subject to vesting requirements over a number of years, and are designed to promote the retention of management and to achieve strong performance for our Company.
We believe our compensation policies are particularly appropriate since we are an externally managed REIT. REIT regulations require us to pay at least 90% of our taxable income to shareholders as dividends. As a result, we believe that our shareholders are principally interested in receiving attractive risk-adjusted dividends and growth in book value. Accordingly, we want to provide an incentive to our named executive officers that rewards success in achieving these goals. Since we generally do not have the ability to retain earnings, we believe that equity-based awards serve to align the interests of named executive officers with the interests of our shareholders in receiving attractive risk-adjusted dividends and book value growth. Additionally, we believe that equity-based awards are consistent with our shareholders interest in book value growth as these individuals will be incented to grow book value for shareholders over time. We believe that this alignment of interests provides an incentive to our named executive officers to implement strategies that will enhance our long-term performance and promote growth in book value.
32 | | 2018 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Decisions Made in Fiscal 2017
The Compensation Committee considers many material factors, including (1) the results of the annual say on pay vote regarding the executive compensation of our named executive officers during the prior fiscal year; (2) our Executive Chairmans evaluation of the named executive officers performance in the preceding fiscal year; (3) the anticipated contribution by the named executive officer in the upcoming fiscal year, taking into account the role, responsibility and scope of each position and the Compensation Committees perception regarding the quality of the services provided by each named executive officer in carrying out those responsibilities; (4) the extent to which the long-term equity award grant value is within (or outside) a certain range of percentile levels for long-term equity award grants for comparable positions at our industry and sector peers (and whether it is at the lower end or the upper end of such range); (5) any extraordinary changes that have occurred (such as a significant change in responsibilities or a promotion); (6) the compensation earned by or granted to the named executive officers from our Manager, as well as the combined value of compensation earned from or granted by our Manager and the Company relative to peer compensation; (7) the value and potential value for the named executive officer of the other elements of the Companys compensation program; (8) recommendations of our Manager and various reports provided by our independent compensation consultants; (9) our financial and operating performance in the past year and our perceived future prospects; and (10) general market practices.
In addition, the Company considers the Company-wide equity budget, which is taken into account in determining the relative size of awards granted to the named executive officers to ensure there is sufficient value available for grant to all eligible employees of the Company. Similar to the determinations with respect to other elements of compensation, the Company considers all relevant factors taken as a whole in setting the applicable equity grant for the fiscal year.
The Compensation Committee considered these multiple factors in determining whether to increase or decrease the amounts of the prior years equity award grants. There was no formulaic approach in the use of these various factors in determining the number of shares to award to each named executive officer. The equity award amounts granted to our named executive officers were determined on a subjective basis, using the various factors, in the Compensation Committees sole discretion.
2017 Performance-Based Restricted Share Unit Grants
Approximately 55% of the long-term equity incentive awards granted to our named executive officers was in the form of PSUs. During Fiscal 2017, we granted our named executive officers PSUs under our 2009 Plan in the following amounts:
Name
|
Target Number of PSUs
|
Grant Date Fair Value(1)
|
||||||
Stanford L. Kurland
|
|
35,246
|
|
|
$600,592
|
| ||
David A. Spector
|
|
24,143
|
|
|
$411,397
|
| ||
Andrew S. Chang
|
|
8,069
|
|
|
$137,496
|
| ||
Vandad Fartaj
|
|
8,069
|
|
|
$137,496
|
| ||
Doug Jones
|
|
8,069
|
|
|
$137,496
|
|
(1) | The PSUs awarded to Messrs. Chang, Fartaj and Jones are also included as All Other Compensation in the 2017 Compensation Paid to our Named Executive Officers by Our Manager table contained in this Proxy Statement. |
With respect to the PSUs granted during Fiscal 2017 to our named executive officers, the performance measurement periods are the 2017, 2018 and 2019 fiscal years. Payout opportunity for these PSUs exists annually and cumulatively up to a maximum of 150% in any given year; provided, however, that we have satisfied the relevant performance goals and the named executive officer is providing services to our Company or an affiliate as of the relevant date. Additional details regarding the threshold, target and maximum payouts for the PSUs is provided in the 2017 Grants of Plan-Based Awards Table included in this Proxy Statement.
Prior to vesting, a PSU is generally subject to forfeiture upon termination of service to us. Pursuant to the PSU award agreement, upon a change in control, any PSU not previously vested shall become fully vested only if the executive officers service is terminated by us (other than for cause) as a result of or in connection with such change in control; provided, however, that if the Companys shares cease to be publicly traded on an established securities market in connection with such change in control, then any PSUs not previously vested shall become fully vested irrespective of any such termination of service.
| 2018 Proxy Statement | 33 |
COMPENSATION DISCUSSION AND ANALYSIS |
Performance Measures for 2017 PSUs
The PSUs that vest, if any, will be settled in common shares following the end of each performance period based on the following performance measures as described in the following table:
(a) | return on equity, or ROE, which is defined as our net income attributable to common shareholders for a fiscal year divided by average common shareholders equity; |
(b) | return on equity associated with our distressed mortgage loans portfolio (applicable during 2017 and 2018 fiscal years); and |
(c) | average equity invested in our distressed mortgage loans (applicable during 2019 fiscal year). |
A summary of the performance measures contained in the PSUs granted to our named executive officers during Fiscal 2017 is provided below:
Component
|
Comments
|
Target
|
% of
| ||||||||||
Component 1
Return on Equity |
Return on equity (ROE) is the amount of net income attributable to common shareholders expressed as a percentage of common shareholders average equity. ROE = Net Income attributable to common shareholders for a fiscal year ÷ Average Common Shareholders Equity. The performance measurement periods are 2017, 2018 and 2019. ROE payout opportunity exists annually and cumulatively. A 7% ROE generates a 50% payout and an 11% ROE generates a 150% payout with a linear progression between those two endpoints. If ROE in year 1 or year 2 is less than 9% and cumulative ROE in years 1 and 2 is greater than 14%, or in years 1 through 3 is greater than 21%, cumulative ROE over the applicable 2 or 3 year period may be utilized to determine the award. The annual award is the greater of the amount determined under the annual approach or the cumulative approach. The cumulative approach may only be applied once during the three years. There is no look back to a year that generated equal to or more than a 100% payout.
|
9% cumulative, annualized ROE
|
100% | ||||||||||
Component 2
ROE of Distressed Mortgage Loans |
For years 1 & 2 only, if the overall ROE described in Component 1 is 7% or larger in the related year, a payout for distressed mortgage loans is available if the ROE of distressed loans also exceeds 7%. The payout will be 25% of the Component 1 target and is incremental to the component 1 payout. In each year, the combined payout of Components 1 & 2 cannot exceed 150% of the annual target payout established in Component 1. There is no cumulative feature associated with this Component. Performance is measured on our portfolio of distressed mortgage loans held on January 1, 2017.
|
ROE of distressed mortgage loans >= 7%
|
25%
| ||||||||||
Component 3
Average Equity Invested in Distressed Mortgage Loans
|
For year 3 only, if the year 3 overall ROE described in Component 1 is 7% or larger, a payout for distressed mortgage loans will occur if the year 3 average equity invested in distressed mortgage loans is equal to or less than $100 million. The payout will be 25% of the Component 1 target and is incremental to the component 1 payout. The combined payout of Components 1 & 3 cannot exceed 150% of the annual target payout established in Component 1. There is no cumulative feature associated with this Component. Performance is measured on our portfolio of distressed mortgage loans held on January 1, 2017.
|
Average equity invested in distressed mortgage loans =< $100 million
|
25%
|
(1) Percentages are not intended to sum to 100%.
34 | | 2018 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
2017 Time-Based Restricted Share Unit Grants
Approximately 45% of the long-term equity incentive awards granted to our named executive officers was in the form of time-based RSUs. During Fiscal 2017, we granted our named executive officers RSUs under our 2009 Plan in the following amounts:
Name
|
Number of RSUs
|
Grant Date Fair Value(1)
|
||||||
Stanford L. Kurland
|
|
28,838
|
|
|
$491,400
|
| ||
David A. Spector
|
|
19,753
|
|
|
$336,591
|
| ||
Andrew S. Chang
|
|
6,602
|
|
|
$112,498
|
| ||
Vandad Fartaj
|
|
6,602
|
|
|
$112,498
|
| ||
Doug Jones
|
|
6,602
|
|
|
$112,498
|
|
(1) | The RSUs awarded to Messrs. Chang, Fartaj and Jones are also included as All Other Compensation in the 2017 Compensation Paid to our Named Executive Officers by our Manager table contained in this Proxy Statement. |
The RSUs granted to our named executive officers in Fiscal 2017 generally vest ratably over a three-year period beginning on the one-year anniversary of the grant date (or such other date as determined by the Committee) and entitle the recipients thereof to receive dividend equivalents during the vesting period.
Prior to vesting, an RSU is generally subject to forfeiture upon termination of service to us. Pursuant to our RSU award agreement, upon a change in control, any RSU not previously vested shall become fully vested only if the executive officers service is terminated by the Company (other than for cause) as a result of or in connection with such change in control; provided, however, that if the Companys shares cease to be publicly traded on an established securities market in connection with such change in control, then any RSUs not previously vested shall become fully vested irrespective of any such termination of service.
Executive Compensation Decision Making Process
Role of the Compensation Committee. The Compensation Committee has overall responsibility for recommending to our Board the compensation of our President and Chief Executive Officer and determining the incentive compensation of our other named executive officers. Members of the Compensation Committee are appointed by the Board. Currently, the Compensation Committee consists of three members of the Board, Mr. Willey and Mmes. McAllister and Stewart, none of whom serve as our executive officers. Each of Mr. Willey and Mmes. McAllister and Stewart qualifies as an independent trustee under the rules of the NYSE. See the section entitled CORPORATE GOVERNANCECommittees of the Board of Trustees. Each year, the Compensation Committee conducts an evaluation of each named executive officer to determine if changes in such officers compensation are appropriate based on the considerations described below. At the Compensation Committees request, our Executive Chairman and our President and Chief Executive Officer provide input for the Compensation Committee regarding the performance and appropriate compensation of the other named executive officers. The Compensation Committee gives considerable weight to their evaluation of the other named executive officers because of their direct knowledge of each such officers performance and contributions.
The Role of the Outside Independent Compensation Consultant. Our Compensation Committee has the sole authority to retain, compensate and terminate any independent compensation consultant of its choosing in assessing our compensation program and determining the appropriate, competitive levels of compensation for our executive officers. Pursuant to such authority, our Compensation Committee utilized Mercer (US) Inc., or Mercer, as its outside independent compensation consultant from 2013 through October 2017. In October 2017, our Compensation Committee retained Pearl Meyer & Partners, or Pearl Meyer, as its independent compensation consultant.
The Mercer consultant attended meetings of the Compensation Committee during the majority of Fiscal 2017, as requested by the Chair of the Compensation Committee. Mercer provided the following services to us during that period:
| Conducted a review of the competitive market data regarding long-term incentive targets for our named executive officers; |
| Assessed our executive compensation peer group and recommended changes as necessary; |
| Assessed compensation levels within our peer group for named executive officers and other executive officers; |
| Reviewed historical financial performance for peer group companies in assessing our Companys overall performance; |
| Provided market research on various issues as requested by our Company; |
| Prepared materials for and participated in Compensation Committee meetings, as requested; |
| 2018 Proxy Statement | 35 |
COMPENSATION DISCUSSION AND ANALYSIS |
| Consulted with our Compensation Committee regarding compensation strategy and best practices; and |
| Assisted in compensation plan designs and modifications, as requested. |
Mercer did not provide any other services to us in Fiscal 2017.
Pearl Meyer commenced its engagement with the Compensation Committee in October 2017 and provided the following services:
| Attended Compensation Committee meetings and prepared certain meeting materials in connection with such meetings; |
| Reviewed the Companys peer group for executive compensation purposes for Fiscal 2018 and provided recommendations for changes to the group; |
| Evaluated the competitive positioning of our named executive officers long-term incentive compensation relative to our peer companies to support Fiscal 2018 decision-making; |
| Advised on Fiscal 2018 target award levels within the long-term incentive program and, as needed, on actual compensation actions; |
| Assessed whether our compensation programs might encourage inappropriate risk taking that could have a material adverse effect on us; and |
| Assisted with the preparation of this Compensation Discussion and Analysis for this Proxy Statement. |
Assessment of Outside Independent Compensation Consultant Conflicts of Interest. Under rules promulgated by the SEC, the Compensation Committee must determine, after taking into account six independence-related factors, whether any work completed by a compensation consultant raised any conflict of interest. Factors considered by the Compensation Committee include the following six factors specified by the NYSE rules: (1) other services provided to us by the compensation consultant; (2) what percentage of the compensation consultants total revenue is made up of fees from us; (3) policies or procedures of the compensation consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Compensation Committee members; (5) any of our common shares owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the compensation consultant or the individual consultants involved in the engagement. For Fiscal 2017, the Compensation Committee did not identify any conflict of interest with respect to Mercer during their tenure. Upon commencement of the engagement of Pearl Meyer during October 2017, the Compensation Committee did not identify any conflict of interest.
The Use of Peer Group and Competitive Market Data. On an annual basis, we engage in a comprehensive review of our peer companies with our independent compensation consultant. To assist in decision making regarding our compensation and benefits program, our management and the Compensation Committee review competitive market data from a peer group of publicly traded companies in specific industries in which we compete for executive talent, among other factors. The market data reviewed includes peer proxy data of companies similar in industry, size, structure, scope and sophistication. Proxy data was gathered from proxy statements and other publicly filed documents.
How We Establish our Peer Group. The Compensation Committee updated its peer group used for evaluating Fiscal 2017 compensation decisions based on objective criteria as presented in the table below:
Objective Criteria Considered
|
Fiscal 2017 Peer Group
| |
Companies in the mortgage REIT industry Companies with market capitalizations within a reasonable range Companies with net income within a reasonable range Companies with revenue within a reasonable range Competitors for executive talent Companies of comparable scope and complexity Competitors for equity investor capital Companies that identify us as their direct peer Companies with similar pay practices
|
AG Mortgage Investment Trust, Inc. Capstead Mortgage Corporation Chimera Investment Corporation CYS Investments, Inc. Invesco Mortgage Capital iStar Inc. MFA Financial, Inc. MTGE Investment Corp. New Residential Investment Corp. Redwood Trust, Inc. Starwood Property Trust, Inc. Two Harbors Investment Corp.
| |
36 | | 2018 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Policies and Practices As They Relate to Our Risk Management. We have designed our executive compensation program to reward strong financial and individual performance. Company performance objectives are based on our overall performance rather than on only a few discrete performance measures related to a particular aspect of our business activities. We believe that this structure, as further explained below, minimizes risks resulting from compensation practices.
Our Compensation Committee believes that its compensation policies and practices for our named executive officers do not create risks that are reasonably likely to have a material adverse effect on us. We believe that appropriate safeguards are in place with respect to our compensation program and policies that assist in mitigating excessive risk taking that could harm the value of our business or reward poor judgment by our executive officers.
In that regard, the Compensation Committee requested assistance from our independent compensation consultants in reviewing our compensation policies and practices. Based on its review, the Compensation Committee concluded that our compensation policies and practices as they apply to our named executive officers are designed with an appropriate balance of risk and reward in relation to our overall business strategy and do not create risks that are reasonably likely to have a material adverse effect on our business.
As part of the review, numerous factors were noted that reduce the likelihood of excessive risk taking which include, but are not limited to, the following:
| Our compensation to our named executive officers consists solely of long-term equity awards in the form of RSUs and PSUs; |
| Our Compensation Committee has ultimate authority to determine, and adjust, if appropriate, compensation provided to our executive officers, including each of the named executive officers; |
| Our named executive officers are subject to share ownership guidelines that require a certain minimum level of share ownership; and |
| Our Compensation Committee has the authority to retain any advisor it deems necessary to fulfill its obligations. |
Executive Share Ownership Guidelines
Our executive share ownership guidelines, which are approved by our Compensation Committee, are intended to further the objective of aligning the interests of our executive officers with those of our shareholders. These share ownership guidelines provide that our NEOs and other executive officers should accumulate a minimum number of shares over a specified time frame.
A summary of the share ownership guidelines are set forth in the following table:
Executive Officer Title
|
Share Ownership
|
Compliant
| ||||
Executive Chairman of the Board of Trustees
|
|
$2,000,000
|
|
✓
| ||
President and Chief Executive Officer
|
|
$2,000,000
|
|
✓
| ||
Other Executive Officers
|
|
$ 500,000
|
|
✓
|
For purposes of the guidelines, share ownership includes common shares owned directly and RSUs. The types and amounts of share-based awards are intended, in part, to facilitate the accumulation of sufficient shares by our executive officers to allow them to meet the share ownership guidelines within the applicable timeline. Each executive officer is expected to meet the respective level of share ownership within five years of becoming subject to such guidelines. Each of our executive officers is in compliance with our share ownership guidelines. The Compensation Committee will annually review each executive officers compliance with or progress toward meeting the share ownership guidelines.
During 2018, we adopted a policy regarding the recoupment of incentive compensation which provides that if we issue a material accounting restatement as a result of erroneous data in our financial statements, our Board or an authorized Board committee will have the authority, in its sole discretion, to recover any incentive compensation that (i) is received by any named executive officer or any other officer whose title is senior managing director or higher during the two fiscal years immediately preceding the date of such accounting restatement issuance, and (ii) that exceeds the amount that would have been paid to such individuals under the accounting restatement, calculated on a pre-tax basis.
| 2018 Proxy Statement | 37 |
COMPENSATION DISCUSSION AND ANALYSIS
|
Trading Controls and Anti-Pledging and Anti-Hedging Policies
Our named executive officers and trustees are required to obtain preclearance prior to entering into any transaction involving company securities. Trading is generally permitted only during open trading windows. Any such individuals who are subject to trading restrictions may enter into trading plans under Rule 10b5-1 of the Exchange Act, but these trading plans may be entered into only during an open trading window and must be pre-approved as well.
We also prohibit our named executive officers, trustees and other employees from pledging any company securities or entering into margin accounts involving company securities. We prohibit these transactions because of the potential that sales of company securities could occur outside trading periods and without the required pre-clearance approval.
In addition, our named executive officers, trustees and other employees are prohibited from entering into hedging transactions involving company securities.
38 | | 2018 Proxy Statement |
COMPENSATION TABLES |
2017 Summary Compensation Table*
We do not provide any of our named executive officers with any cash compensation or bonus, nor do we provide any named executive officers with pension benefits or nonqualified deferred compensation plans. We have not entered into any employment agreements with any person, and are not obligated to make any cash payments upon termination of employment or a change in control of us.
During Fiscal 2017, we granted to our named executive officers long-term equity compensation in the form of RSUs pursuant to our 2009 Plan. The 2017 Summary Compensation Table below lists the annual compensation for our named executive officers relating to equity awards received from us in Fiscal 2017, Fiscal 2016 and Fiscal 2015.
Name and Principal Position
|
Year
|
Stock Awards
|
Total
| ||||||||||||
Stanford L. Kurland Executive Chairman of the Board of Trustees |
2017 | 1,091,991 | 1,091,991 | ||||||||||||
|
|
||||||||||||||
2016 | 1,028,252 | 1,028,252 | |||||||||||||
|
|
||||||||||||||
|
2015
|
|
|
1,678,985
|
|
|
1,678,985
|
| |||||||
David A. Spector President and Chief Executive Officer |
|
2017 |
|
|
747,988 |
|
|
747,988 |
| ||||||
|
|
||||||||||||||
2016 | 704,897 | 704,897 | |||||||||||||
|
|
||||||||||||||
|
2015
|
|
|
1,151,000
|
|
|
1,151,000
|
| |||||||
Andrew S. Chang Senior Managing Director and Chief Financial Officer |
|
2017 |
|
|
249,994 |
|
|
249,994 |
| ||||||
|
|
||||||||||||||
2016 | 191,057 | 191,057 | |||||||||||||
|
|
||||||||||||||
|
2015
|
|
|
311,988
|
|
|
311,988
|
| |||||||
Vandad Fartaj Senior Managing Director and Chief Investment Officer |
|
2017 |
|
|
249,994 |
|
|
249,994 |
| ||||||
|
|
||||||||||||||
2016 | 191,057 | 191,057 | |||||||||||||
|
|
||||||||||||||
|
2015
|
|
|
461,981
|
|
|
461,981
|
| |||||||
Doug Jones Senior Managing Director and Chief Mortgage Banking Officer |
|
2017 |
|
|
249,994 |
|
|
249,994 |
| ||||||
|
|
||||||||||||||
2016 | 191,057 | 191,057 | |||||||||||||
|
|
||||||||||||||
|
2015
|
|
|
311,988
|
|
|
311,988
|
|
* | The columns for Salary, Bonus, Option Awards, Non-Equity Incentive Plan Compensation, Change in Pension Value and Nonqualified Deferred Compensation Earnings, and All Other Compensation have been omitted because they are not applicable. |
(1) | The amounts in this column represent the full grant date fair value, as determined in accordance with ASC 718, of the PSUs and/or RSUs granted to our named executive officers in Fiscal 2017, Fiscal 2016, and Fiscal 2015 pursuant to our 2009 Plan. For Fiscal 2017, the amount shown includes PSUs awarded on February 23, 2017 in the amounts of 35,246 for Mr. Kurland, 24,143 for Mr. Spector, and 8,069 for Messrs. Chang, Fartaj and Jones. The aggregate value of the PSUs awarded on February 23, 2017, assuming that the highest level of performance conditions will be achieved, is $900,888 for Mr. Kurland, $617,095 for Mr. Spector, and $206,244 for Messrs. Chang, Fartaj, and Jones. For more information on the assumptions used in our estimates of value, please refer to Note 25Share-Based Compensation Plans in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which was filed with the SEC on March 1, 2018. |
| 2018 Proxy Statement | 39 |
COMPENSATION TABLES |
2017 Grants of Plan-Based Awards*
The following table provides information about our plan-based awards granted under our 2009 Plan to our named executive officers in Fiscal 2017.
Name
|
Grant
|
Estimated Future
Payouts
|
All Other
|
Grant Date
|
||||||||||||||||||||
Threshold
|
Target
|
Maximum
|
||||||||||||||||||||||
Stanford L. Kurland
|
||||||||||||||||||||||||
RSU
|
|
02/23/17
|
|
|
28,838
|
|
|
491,400
|
| |||||||||||||||
PSU
|
|
02/23/17
|
|
|
17,623
|
|
|
35,246
|
|
|
52,869
|
|
|
600,592
|
| |||||||||
David A. Spector
|
||||||||||||||||||||||||
RSU
|
|
02/23/17
|
|
|
19,753
|
|
|
336,591
|
| |||||||||||||||
PSU
|
|
02/23/17
|
|
|
12,071
|
|
|
24,143
|
|
|
36,214
|
|
|
411,397
|
| |||||||||
Andrew S. Chang
|
||||||||||||||||||||||||
RSU
|
|
02/23/17
|
|
|
6,602
|
|
|
112,498
|
| |||||||||||||||
PSU
|
|
02/23/17
|
|
|
4,034
|
|
|
8,069
|
|
|
12,103
|
|
|
137,496
|
| |||||||||
Vandad Fartaj
|
||||||||||||||||||||||||
RSU
|
|
02/23/17
|
|
|
6,602
|
|
|
112,498
|
| |||||||||||||||
PSU
|
|
02/23/17
|
|
|
4,034
|
|
|
8,069
|
|
|
12,103
|
|
|
137,496
|
| |||||||||
Doug Jones
|
||||||||||||||||||||||||
RSU
|
|
02/23/17
|
|
|
6,602
|
|
|
112,498
|
| |||||||||||||||
PSU
|
|
02/23/17
|
|
|
4,034
|
|
|
8,069
|
|
|
12,103
|
|
|
137,496
|
|
* | The columns for Estimated Future Payouts Under Non-Equity Incentive Plan Awards, All Other Option Awards: Number of Securities Underlying Options, and Exercise or Base Price of Option Awards have been omitted because they are not applicable. |
(1) | Represents the potential payout range of PSUs granted in Fiscal 2017. Awards vest based on our ROE for the fiscal year that ended immediately before such vesting date. The combined maximum payout under the performance goals is 150% of the target award. If ROE for a fiscal year is less than the threshold ROE, no portion of the granted PSUs will become vested for such fiscal year. In addition to the performance conditions, the named executive officers must satisfy a service condition in order for the award to vest. |
(2) | Reflects the number of RSUs granted to the named executive officer on February 23, 2017. These RSUs vest in equal annual installments for a three-year period commencing on the one-year anniversary of the grant date. |
(3) | The grant date fair value of an RSU shown in this column is determined in accordance with ASC 718. |
40 | | 2018 Proxy Statement |
COMPENSATION TABLES |
2017 Outstanding Equity Awards at Fiscal Year-End*
The following table provides information about outstanding equity awards of our named executive officers as of the end of Fiscal 2017.
Stock Awards | ||||||||||||||||||||
Name |
Grant Date |
Number of Shares or Units of Stock Granted That Have Not Vested (#)(1) |
Market Value of Shares or Units of Stock Granted That Have Not Vested ($)(2) |
Number of Unearned Shares or Units of Stock Granted That Have Not Vested (#) |
Market Value of Unearned Shares or Units of Stock Granted That Have Not Vested ($)(2) |
|||||||||||||||
Stanford L. Kurland
|
|
02/23/2017
|
|
|
28,838
|
|
|
463,427
|
|
|||||||||||
|
02/23/2017
|
|
|
35,246
|
(3)
|
|
283,202
|
| ||||||||||||
|
02/24/2016
|
|
|
33,116
|
|
|
532,174
|
|
||||||||||||
|
02/24/2016
|
|
|
22,077
|
(4)
|
|
177,389
|
| ||||||||||||
|
02/24/2015
|
|
|
39,321
|
|
|
631,888
|
|
||||||||||||
|
06/03/2014
|
|
|
20,025
|
|
|
321,802
|
|
||||||||||||
David A. Spector
|
|
02/23/2017
|
|
|
19,753
|
|
|
317,431
|
|
|||||||||||
|
02/23/2017
|
|
|
24,143
|
(3)
|
|
193,989
|
| ||||||||||||
|
02/24/2016
|
|
|
22,702
|
|
|
364,821
|
|
||||||||||||
|
02/24/2016
|
|
|
15,134
|
(4)
|
|
121,602
|
| ||||||||||||
|
02/24/2015
|
|
|
26,956
|
|
|
433,183
|
|
||||||||||||
|
06/03/2014
|
|
|
13,725
|
|
|
220,561
|
|
||||||||||||
Andrew S. Chang
|
|
02/23/2017
|
|
|
6,602
|
|
|
106,094
|
|
|||||||||||
|
02/23/2017
|
|
|
8,069
|
(3)
|
|
64,834
|
| ||||||||||||
|
02/24/2016
|
|
|
6,153
|
|
|
98,879
|
|
||||||||||||
|
02/24/2016
|
|
|
4,102
|
(4)
|
|
32,960
|
| ||||||||||||
|
02/24/2015
|
|
|
7,307
|
|
|
117,423
|
|
||||||||||||
|
06/03/2014
|
|
|
3,725
|
|
|
59,861
|
|
||||||||||||
Vandad Fartaj
|
|
02/23/2017
|
|
|
6,602
|
|
|
106,094
|
|
|||||||||||
|
02/23/2017
|
|
|
8,069
|
(3)
|
|
64,834
|
| ||||||||||||
|
02/24/2016
|
|
|
6,153
|
|
|
98,879
|
|
||||||||||||
|
02/24/2016
|
|
|
4,102
|
(4)
|
|
32,960
|
| ||||||||||||
|
11/16/2015
|
|
|
7,179
|
|
|
115,367
|
|
||||||||||||
|
02/24/2015
|
|
|
7,307
|
|
|
117,423
|
|
||||||||||||
|
06/03/2014
|
|
|
3,725
|
|
|
59,861
|
|
||||||||||||
Doug Jones
|
|
02/23/2017
|
|
|
6,602
|
|
|
106,094
|
|
|||||||||||
|
02/23/2017
|
|
|
8,069
|
(3)
|
|
64,834
|
| ||||||||||||
|
02/24/2016
|
|
|
6,153
|
|
|
98,879
|
|
||||||||||||
|
02/24/2016
|
|
|
4,102
|
(4)
|
|
32,960
|
| ||||||||||||
|
02/24/2015
|
|
|
7,307
|
|
|
117,423
|
|
||||||||||||
|
06/03/2014
|
|
|
3,725
|
|
|
59,861
|
|
* | The columns for Option Awards, Equity Incentive Plan Awards: Number of Securities Underlying Unexercised OptionsExercisable, Number of Securities Underlying Unexercised OptionsUnexercisable, Option Exercise Price, and Option Expiration Date have been omitted because they are not applicable. |
(1) | Reflects RSUs granted to each named executive officer, which units vest in equal annual installments for (a) a four-year period commencing on the one-year anniversary of the respective grant date for awards granted in Fiscal 2013, Fiscal 2014 and Fiscal 2015, and (b) a three-year period commencing on the one-year anniversary of the respective grant date for awards granted in Fiscal 2016 and Fiscal 2017. |
(2) | Per share value of stock awards is $16.07 based on the closing price of the common shares on the NYSE on December 29, 2017. |
(3) | The indicated number of unearned units consists entirely of the PSUs with a performance period that ends on December 31, 2019 and is described above under the heading Compensation Decisions Made in 2017. Based on current performance levels, these PSUs are reported at the threshold payout level. |
(4) | The indicated number of unearned units consists entirely of the PSUs with a performance period that ends on December 31, 2018 and is described above under the heading Compensation Decisions Made in 2017. Based on current performance levels, these PSUs are reported at the threshold payout level. |
| 2018 Proxy Statement | 41 |
COMPENSATION TABLES |
2017 Option Exercises and Stock Vested*
The following table sets forth certain information with respect to our named executive officers regarding the vesting of RSUs during Fiscal 2017:
Stock Awards(1)
|
||||||||
Name
|
Number of
|
Value Realized ($)(3)
|
||||||
Stanford L. Kurland
|
|
81,729
|
|
|
1,418,404
|
| ||
David A. Spector
|
|
56,024
|
|
|
972,294
|
| ||
Andrew S. Chang
|
|
15,532
|
|
|
269,591
|
| ||
Vandad Fartaj
|
|
17,925
|
|
|
308,765
|
| ||
Doug Jones
|
|
15,532
|
|
|
269,591
|
|
* | The columns for Option Awards have been omitted because they are not applicable. |
(1) | If the named executive officer sold a portion of the common shares acquired upon vesting of RSUs to satisfy the tax obligation with respect to such vesting, the number of common shares acquired is less than the amount shown. The number of common shares acquired and the value realized on vesting as reflected in this column have not been reduced to reflect the sale of common shares to satisfy any tax obligations. |
(2) | This amount includes vesting of RSUs and PSUs. One-third of the PSUs granted to our named executive officers on February 23, 2017 vested on March 12, 2018, and the payout of common shares of beneficial interest pursuant to the PSU award for the 2017 fiscal year was determined based on our return on equity (ROE) of 7.72% for the period of January 1, 2017 through December 31, 2017 as measured against ROE targets established at the time of grant. The payout percentage for the award based on target achievement was 68%. On March 12, 2018, the Compensation Committee also determined that the PSUs granted to our named executive officers on February 24, 2016 did not meet the ROE targets established at the time of grant and thus lapsed without vesting. |
(3) | The value realized on vesting is calculated by multiplying the number of common shares vesting by the fair market value of our common shares on the respective vesting dates. |
2017 Pension Benefits
The table for Pension Benefits has been omitted because it is not applicable. We do not provide any of our named executive officers with any pension plans or benefits.
2017 Nonqualified Deferred Compensation
The table for Nonqualified Deferred Compensation has been omitted because it is not applicable. We do not provide any of our named executive officers with any nonqualified deferred compensation plans or benefits.
Potential Payments upon Termination of Employment
None of our named executive officers has the right to receive severance payments from us and we are not required to make payments to a named executive officer upon a change of control of us. However, all unvested RSUs and PSUs we have granted under our 2009 Plan will vest immediately upon our change of control (as defined in our 2009 Plan) followed by a termination of services other than for cause or upon the termination of our management agreement between us and our Manager other than for cause (as defined in our management agreement). The term of our management agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement. Assuming that the triggering event took place on December 31, 2017, the value of the RSUs and PSUs that vest for each named executive officer would be the same as the respective values set forth in the table presented in the section entitled 2017 Outstanding Equity Awards at Fiscal Year-End.
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee is comprised solely of the following independent trustees: Mr. Willey, Chairman, and Mmes. McAllister and Stewart. None of them has ever served as an officer or employee for us or any of our affiliates or has any other business relationship or affiliation with us, except his or her service as a trustee. During Fiscal 2017, none of our executive officers served as a director or a member of the compensation committee of another entity, one of whose executive officers was a trustee or a member of our Compensation Committee.
42 | | 2018 Proxy Statement |
CEO PAY RATIO |
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. David Spector, our President and Chief Executive Officer, or our CEO:
For 2017, our last completed fiscal year:
| the median of the annual total compensation of all employees of our company (other than our CEO) was $77,728; and |
| the annual total compensation of our CEO, as reported in the Summary Compensation Table included in this Proxy Statement, was $747,988. |
Based on this information, for 2017 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 10 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
1. | We determined that, as of December 31, 2017, our employee population consisted of approximately three salaried individuals, each of whom is located in the United States. This population consisted of only full-time employees. In determining whether our workers are employees, we applied widely recognized employment and tax laws. |
2. | To identify the median employee from our employee population, we compared the amount of salary, bonus, wages, overtime and other cash compensation of our employees as reflected in our payroll records for 2017. None of these employees received annual equity awards. |
3. | Once we identified our median employee, we combined all of the elements of such employees compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $77,728. |
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employees annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
| 2018 Proxy Statement | 43 |
PROPOSAL IIIADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION |
Proposal IIIAdvisory (Non-Binding) Vote to Approve Executive Compensation
As required pursuant to Section 14A of the Exchange Act, we are presenting a proposal that gives shareholders the opportunity to cast an advisory (non-binding) vote on our executive compensation for named executive officers by voting for or against it. At our 2017 annual meeting of shareholders, approximately 61% of the shareholders voting on our say on pay proposal voted for the proposal. We believe that this vote result was negatively impacted by perceived lack of transparency regarding the executive compensation paid to our executive officers by our Manager. We recognize that our shareholders ability to provide input with respect to our executive compensation practices and disclosure is an important element of good corporate governance, and we carefully considered the results of the 2017 say-on-pay vote in making our 2017 compensation decisions. Accordingly, we adopted the following compensation best practices:
| We enhanced the disclosures set forth in the Compensation Discussion and Analysis section in this Proxy Statement regarding the compensation paid to our named executive officers by our Manager. |
| We amended our 2009 Plan to require a one-year minimum vesting period for at least 95% of all equity awards granted pursuant to the 2009 Plan and to explicitly prohibit the repricing of stock options. |
| We adopted a clawback policy regarding recoupment of incentive compensation that applies to all of our named executive officers and any other officer whose title is senior managing director and higher. |
| Our Compensation Committee and members of our senior management team undertook an enhanced engagement program to solicit feedback from shareholders regarding our executive compensation program and governance practices. |
OUR BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS AN ADVISORY (NON-BINDING) VOTE FOR THE FOLLOWING RESOLUTION APPROVING OUR EXECUTIVE COMPENSATION:
RESOLVED, that the compensation paid to PennyMac Mortgage Investment Trusts named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, the compensation tables and any narrative discussion in this Proxy Statement, is hereby APPROVED.
We do not pay or accrue any annual base salaries or cash bonuses to our named executive officers. Rather, in our discretion, we may grant equity-based awards, which are designed to align the interests of named executive officers with the interests of our shareholders in generally attractive risk-adjusted returns and growing and book value over time. We believe equity-based awards align these interests by allowing our named executive officers to share in the creation of value for our shareholders through capital appreciation and dividends.
These equity awards are generally subject to vesting requirements over a number of years, and they are designed to promote the retention of management and the achievement of high financial and individual performance. These awards provide a further benefit to us by enabling our Manager and Servicer to attract, motivate and retain highly talented executive leaders who are incented to implement strategies that will enhance our long-term performance and promote growth in dividends and book value.
We encourage our shareholders to read the section in this Proxy Statement entitled Compensation Discussion and Analysis, in which we describe in greater detail our compensation program, objectives and policies for our named executive officers. For the reasons described therein and above, we recommend that our shareholders endorse our compensation program for named executive officers. While our Board intends to carefully consider the shareholder vote resulting from this proposal, the final vote will not be binding on us and is advisory in nature.
44 | | 2018 Proxy Statement |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Certain Relationships and Related Transactions
Each of our executive officers is also an executive officer of PFSI and one or more of its subsidiaries, including our Manager and our Servicer, and each of our executive officers holds an ownership interest in PFSI. In addition, Messrs. Kurland and Spector serve on PFSIs board of directors. This section discusses certain direct and indirect relationships and transactions involving us and certain persons related to us since January 1, 2017.
Management Agreement
We are externally managed and advised by our Manager pursuant to a management agreement, which was amended and restated effective September 12, 2016. Our management agreement requires our Manager to oversee our business affairs in conformity with the investment policies that are approved and monitored by our Board. Our Manager is responsible for our day-to-day management and will perform such services and activities related to our assets and operations as may be appropriate.
Pursuant to our management agreement, our Manager collects a base management fee and may collect a performance incentive fee, both payable quarterly and in arrears. The management agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
The base management fee is calculated at a defined annualized percentage of shareholders equity. Our shareholders equity is defined as the sum of the net proceeds from any issuances of our equity securities since our inception (weighted for the time outstanding during the measurement period); plus our retained earnings at the end of the quarter; less any amount that we pay for repurchases of our common shares (weighted for the time held during the measurement period); and excluding one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between our Manager and our independent trustees and approval by a majority of our independent trustees.
Pursuant to the terms of our management agreement, the base management fee is equal to the sum of (i) 1.5% per year of shareholders equity up to $2 billion, (ii) 1.375% per year of shareholders equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of shareholders equity in excess of $5 billion. The base management fee is paid in cash.
The performance incentive fee is calculated at a defined annualized percentage of the amount by which net income, on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of annualized return on our equity. For the purpose of determining the amount of the performance incentive fee, net income is defined as net income or loss attributable to our common shareholders computed in accordance with GAAP and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges determined after discussions between our Manager and our independent trustees and approval by a majority of our independent trustees. For this purpose, equity is the weighted average of the issue price per common share of all of our public offerings of common shares, multiplied by the weighted average number of common shares outstanding (including restricted share units issued under our equity incentive plans) in the four-quarter period.
The performance incentive fee is calculated quarterly and escalates as net income (stated as a percentage of return on equity) increases over certain thresholds. On each calculation date, the threshold amount represents a stated return on equity, plus or minus a high watermark adjustment. The performance fee payable for any quarter is equal to: (a) 10% of the amount by which net income for the quarter exceeds (i) an 8% return on equity plus the high watermark, up to (ii) a 12% return on equity; plus (b) 15% of the amount by which net income for the quarter exceeds (i) a 12% return on equity plus the high watermark, up to (ii) a 16% return on equity; plus (c) 20% of the amount by which net income for the quarter exceeds a 16% return on equity plus the high watermark.
The high watermark is the quarterly adjustment that reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the Fannie Mae MBS Yield (the target yield) for such quarter. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amount required for our Manager to earn a performance incentive fee is adjusted cumulatively based on the performance of our net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned. The performance incentive fee may be paid in cash or in our common shares (subject to a limit of no more than 50% paid in common shares), at our option.
Our Manager is entitled to reimbursement of its organizational and operating expenses, including third-party expenses, incurred on our behalf, it being understood that our Manager and its affiliates shall allocate a portion of their personnels time to provide certain legal, tax and investor relations services for our direct benefit and for which our Manager shall be reimbursed $120,000 per fiscal quarter, such amount to be reviewed annually and not preclude reimbursement for any other services performed by our Manager or its affiliates.
| 2018 Proxy Statement | 45 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
In addition, the Operating Partnership is required to pay our and our subsidiaries pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our and our subsidiaries operations. These expenses will be allocated based on the ratio of our and our subsidiaries proportion of gross assets compared to all remaining gross assets managed by our Manager as calculated at each fiscal quarter end.
Our Manager may also be entitled to a termination fee under certain circumstances. Specifically, the termination fee is payable for (1) our termination of our management agreement without cause, (2) our Managers termination of our management agreement upon a default by us in the performance of any material term of the agreement that has continued uncured for a period of 30 days after receipt of written notice thereof, or (3) our Managers termination of the agreement after the termination by us without cause (excluding a non-renewal) of our MBS agreement, our MSR recapture agreement or our servicing agreement (each as described and/or defined below). The termination fee is equal to three times the sum of (a) the average annual base management fee and (b) the average annual (or, if the period is less than 24 months, annualized) performance incentive fee earned by our Manager during the 24-month period immediately preceding the date of termination.
We may terminate the management agreement without the payment of any termination fee under certain circumstances, including, among other circumstances, uncured material breaches by our Manager of the management agreement, upon a change in control of our Manager (defined to include a 50% change in the shareholding of our Manager in a single transaction or related series of transactions) or upon the termination of our MBS agreement, our MSR recapture agreement or our servicing agreement by our Servicer without cause.
Our management agreement also provides that, prior to the undertaking by our Manager or its affiliates of any new investment opportunity or any other business opportunity requiring a source of capital with respect to which our Manager or its affiliates will earn a management, advisory, consulting or similar fee, our Manager shall present to us such new opportunity and the material terms on which our Manager proposes to provide services to us before pursuing such opportunity with third parties.
Our Manager earned approximately $22.3 million in base management fees and $304,000 in performance incentive fees in Fiscal 2017 in connection with work performed under our management agreement.
Servicing Agreement
We have entered into a loan servicing agreement, which was amended and restated effective September 12, 2016, and pursuant to which our Servicer provides servicing for our portfolio of residential mortgage loans and subservicing for our portfolio of mortgage servicing rights, or MSRs. Such loan servicing and subservicing provided by our Servicer includes collecting principal, interest and escrow account payments, if any, with respect to mortgage loans, as well as managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications, foreclosures and short sales. Our Servicer also engages in certain loan origination activities that include refinancing mortgage loans and financings that facilitate sales of real estate acquired in settlement of loans, or REOs. The term of our servicing agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per-loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or whether the underlying mortgage property has become REO. The base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $95 per month for loans where the loan is in foreclosure. The base servicing fee rate for REO is $75 per month. To the extent that we rent our REO under our REO rental program, we pay our Servicer an REO rental fee of $30 per month per REO, an REO property lease renewal fee of $100 per lease renewal, and a property management fee in an amount equal to our Servicers cost if property management services and/or any related software costs are outsourced to a third-party property management firm or 9% of gross rental income if our Servicer provides property management services directly. Our Servicer is also entitled to retain any tenant paid application fees and late rent fees and seek reimbursement for certain third-party vendor fees.
Our Servicer is also entitled to certain activity-based fees for distressed whole mortgage loans that are charged based on the achievement of certain events. These fees range from $750 for a streamline modification to $1,750 for a liquidation and $500 for a deed-in-lieu of foreclosure. Our Servicer is not entitled to earn more than one liquidation fee, re-performance fee or modification fee per loan in any 18-month period.
The base servicing fee rates for non-distressed mortgage loans subserviced by our Servicer on our behalf are also calculated through a monthly per-loan dollar amount, with the actual dollar amount for each loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fee rates for mortgage loans subserviced on our behalf are $7.50 per month for fixed-rate mortgage loans and $8.50 per month for adjustable-rate mortgage loans. To the extent that these mortgage loans become delinquent, our Servicer is entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $55 per month and based on the
46 | | 2018 Proxy Statement |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes REO. Our Servicer is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, and assumption, modification and origination fees.
In addition, because we have limited employees and infrastructure, our Servicer is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement. For these services, our Servicer receives a supplemental servicing fee of $25 per month for each distressed whole loan.
Except as otherwise provided in our MSR recapture agreement, when our Servicer effects a refinancing of a loan on our behalf and not through a third-party lender and the resulting loan is readily saleable, or our Servicer originates a loan to facilitate the disposition of the real estate acquired by us in settlement of a loan, our Servicer is entitled to receive from us market-based fees and compensation consistent with pricing and terms our Servicer offers unaffiliated third parties on a retail basis.
We currently participate in the Home Affordable Modification Program, or HAMP (or other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for at risk homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles our Servicer to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to our Servicer in connection with a mortgage loan modification for which we previously paid our Servicer a modification fee, our Servicer is required to reimburse us an amount equal to the incentive payments.
Our Servicer continues to be entitled to reimbursement for all customary, bona fide reasonable and necessary out-of-pocket expenses incurred by our Servicer in connection with the performance of its servicing obligations.
Our Servicer earned from us approximately $43.1 million in loan servicing fees in Fiscal 2017.
Mortgage Banking Services Agreement
Pursuant to a mortgage banking services agreement, or MBS agreement, which was amended and restated effective September 12, 2016, our Servicer provides us with certain mortgage banking services, including fulfillment and disposition-related services, with respect to loans acquired by us from correspondent sellers.
Pursuant to the MBS agreement, our Servicer has agreed to provide such services exclusively for our benefit, and our Servicer and its affiliates are prohibited from providing such services for any other third party. However, such exclusivity and prohibition shall not apply, and certain other duties instead will be imposed upon our Servicer, if we are unable to purchase or finance mortgage loans as contemplated under our MBS agreement for any reason. The MBS agreement expires, unless terminated earlier in accordance with the terms of the agreement, on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
In consideration for the mortgage banking services provided by our Servicer with respect to our acquisition of mortgage loans, our Servicer is entitled to a monthly fulfillment fee in an amount that shall equal (a) no greater than the product of (i) 0.35% and (ii) the aggregate initial unpaid principal balance, or the Initial UPB, of all mortgage loans purchased in such month, plus (b) in the case of all mortgage loans other than mortgage loans sold to or securitized through Fannie Mae or Freddie Mac, no greater than the product of (i) 0.50% and (ii) the aggregate Initial UPB of all such mortgage loans sold and securitized in such month; provided however, that no fulfillment fee shall be due or payable to our Servicer with respect to any Ginnie Mae mortgage loans. We do not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the MBS agreement, our Servicer currently purchases loans underwritten in accordance with the Ginnie Mae Mortgage-Backed Securities Guide as is and without recourse of any kind from us at our cost less an administrative fee plus accrued interest and a sourcing fee ranging from two to three and one-half basis points, generally based on the average number of calendar days that mortgage loans are held by us prior to purchase by our Servicer.
In consideration for the mortgage banking services provided by our Servicer with respect to our acquisition of mortgage loans under our Servicers early purchase program, our Servicer is entitled to fees accruing (i) at a rate equal to $1,500 per year per early purchase facility administered by our Servicer, and (ii) in the amount of $35 for each mortgage loan that we acquire thereunder.
Notwithstanding any provision of the MBS agreement to the contrary, if it becomes reasonably necessary or advisable for our Servicer to engage in additional services in connection with post-breach or post-default resolution activities for the purposes of a correspondent agreement, then we have generally agreed with our Servicer to negotiate in good faith for additional compensation and reimbursement of expenses to be paid to our Servicer for the performance of such additional services.
Our Servicer earned approximately $80.4 million in fulfillment fees in Fiscal 2017 under our mortgage banking services agreement, and our Servicer paid to us approximately $12.1 million in sourcing fees in Fiscal 2017.
| 2018 Proxy Statement | 47 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
MSR Recapture Agreement
Pursuant to the terms of our MSR recapture agreement entered into by PMC with our Servicer and amended and restated effective September 12, 2016, if our Servicer refinances through its consumer direct lending business mortgage loans for which we previously held the MSRs, our Servicer is generally required to transfer and convey to PMC cash in an amount equal to 30% of the fair market value of the MSRs relating to all such mortgage loans so originated. The MSR recapture agreement expires, unless terminated earlier in accordance with the terms of the agreement, on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
We recognized $1.4 million in MSR recapture income during Fiscal 2017.
Spread Acquisition and MSR Servicing Agreements
Effective February 1, 2013, we entered into a master spread acquisition and MSR servicing agreement, or the 2/1/13 Spread Acquisition Agreement, pursuant to which we acquired from our Servicer the rights to receive certain excess servicing spread, or ESS, arising from MSRs acquired by our Servicer from banks and other third party financial institutions. Our Servicer was generally required to service or subservice the related mortgage loans for the applicable agency or investor. We only used the 2/1/13 Spread Acquisition Agreement for the purpose of acquiring ESS relating to Fannie Mae MSRs. The terms of each transaction under the 2/1/13 Spread Acquisition Agreement were subject to the specific terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.
To the extent our Servicer refinanced any of the mortgage loans relating to the ESS we acquired, the 2/1/13 Spread Acquisition Agreement contained recapture provisions requiring that our Servicer transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month was less than $200,000, our Servicer was, at its option, permitted to wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
On February 29, 2016, the parties terminated the 2/1/13 Spread Acquisition Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, our Servicer reacquired from us all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by our Servicer to us and then subject to such 2/1/13 Spread Acquisition Agreement.
On December 19, 2014, we entered into a second master spread acquisition and MSR servicing agreement with our Servicer, or the 12/19/14 Spread Acquisition Agreement. The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to purchase ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.
To the extent our Servicer refinances any of the mortgage loans relating to the ESS we have acquired, the 12/19/14 Spread Acquisition Agreement also contains recapture provisions requiring that our Servicer transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, our Servicer may, at its option, wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
On February 29, 2016, our Servicer also reacquired from us all of its right, title and interest in and to all of the Freddie Mac ESS previously sold by our Servicer to us and then subject to such 12/19/14 Spread Acquisition Agreement. The 12/19/14 Spread Acquisition Agreement remains in full force and effect.
On December 19, 2016, we amended and restated a third master spread acquisition and MSR servicing agreement with our Servicer, or the 12/19/16 Spread Acquisition Agreement. The terms of the 12/19/16 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement and the 12/19/14 Spread Acquisition Agreement, except that we only intend to purchase ESS relating to Ginnie Mae MSRs under the 12/19/16 Spread Acquisition Agreement. Pursuant to the 12/19/16 Spread Acquisition Agreement, we may acquire from our Servicer, from time to time, the right to receive participation certificates representing beneficial ownership in ESS arising from Ginnie Mae MSRs acquired by our Servicer, in which case our Servicer generally would be required to service or subservice the related mortgage loans for Ginnie Mae. The primary purpose of the amendment and restatement was to facilitate the continued financing of the ESS owned by us in connection with the parties participation in the GNMA MSR Facility (as defined below).
To the extent our Servicer refinances any of the mortgage loans relating to the ESS we have acquired, the 12/19/16 Spread Acquisition Agreement also contains recapture provisions requiring that our Servicer transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 12/19/16 Spread Acquisition Agreement, in any
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month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, our Servicer is also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the 12/19/16 Spread Acquisition Agreement contains provisions that require our Servicer to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, our Servicer may, at its option, wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
During Fiscal 2017, we received ESS repayments from PFSI totaling $55.0 million. During Fiscal 2017, we also earned $4.8 million in ESS recapture income.
Master Repurchase Agreement with the Issuer Trust
On December 19, 2016, we entered into a master repurchase agreement with our Servicer, or the PMH Repurchase Agreement, pursuant to which we may borrow from our Servicer for the purpose of financing our participation certificates representing beneficial ownership in ESS. Our Servicer then re-pledges such participation certificates to the PNMAC GMSR ISSUER TRUST, or the Issuer Trust, under a master repurchase agreement, or the PC Repurchase Agreement, by and among our Servicer, Issuer Trust and Private National Mortgage Acceptance Company, LLC, as guarantor. The Issuer Trust was formed for the purpose of allowing our Servicer to finance MSRs and ESS relating to such MSRs in a structured financing transaction referred to as the GNMA MSR Facility.
In connection with the GNMA MSR Facility, our Servicer pledges and/or sells to the Issuer Trust participation certificates representing beneficial interests in MSRs and ESS pursuant to the terms of the PC Repurchase Agreement. In return, the Issuer Trust (a) has issued to our Servicer, pursuant to the terms of an indenture, the Series 2016-MSRVF1 Variable Funding Note, dated December 19, 2016, known as the PNMAC GMSR ISSUER TRUST MSR Collateralized Notes, Series 2016-MSRVF1, or the VFN, and (b) has issued and may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors additional term notes, or the Term Notes, in each case secured on a pari passu basis by the participation certificates relating to the MSRs and ESS. The maximum principal balance of the VFN is $1,000,000,000.
The principal amount paid by our Servicer for the participation certificates under the PMH Repurchase Agreement is based upon a percentage of the market value of the underlying ESS. Upon PMHs repurchase of the participation certificates, PMH is required to repay our Servicer the principal amount relating thereto plus accrued interest (at a rate reflective of the current market and consistent with the weighted average note rate of the VFN and any outstanding Term Notes) to the date of such repurchase. Our Servicer is then required to repay the Issuer Trust the corresponding amount under the PC Repurchase Agreement.
During Fiscal 2017, we paid our Servicer $8.0 million in interest to finance ESS under the PMH Repurchase Agreement and our Servicer, in turn, paid an identical amount to the Issuer Trust under the PC Repurchase Agreement.
Subordination Agreement
As a condition to our entry into the 12/19/16 Spread Acquisition Agreement and our participation in the GNMA MSR Facility, we were also required to enter into a subordination, acknowledgement and pledge agreement, or the Subordination Agreement. Under the terms of the Subordination Agreement, we pledged to the Issuer Trust our rights under the 12/19/16 Spread Acquisition Agreement and our interest in any ESS purchased thereunder.
The Subordination Agreement contains representations, warranties and covenants by us that are substantially similar to those contained in our other financing arrangements. To the extent there exists an event of default under the PC Repurchase Agreement or a trigger event (as defined in the Subordination Agreement), the Issuer Trust would be entitled to liquidate any and all of the collateral securing the PC Repurchase Agreement, including the ESS subject to the PMH Repurchase Agreement.
Loan Purchase Agreements
We have entered into a mortgage loan purchase agreement and a flow commercial mortgage loan purchase agreement with our Servicer. Currently, we use the mortgage loan purchase agreement for the purpose of acquiring residential mortgage loans originated by our Servicer.
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We use the flow commercial mortgage loan purchase agreement for the purpose of acquiring small balance commercial mortgage loans, including multifamily mortgage loans, originated by our Servicer as part of our commercial lending business. Each of the loan purchase agreements contains customary terms and provisions, including representations and warranties, covenants, repurchase remedies and indemnities. The purchase prices we pay our Servicer for such loans are market-based.
During Fiscal 2017, we purchased from our Servicer under the mortgage loan purchase agreement residential mortgage loans with an unpaid principal balance of $810.0 million at an aggregate purchase price of $834.9 million and under the flow commercial mortgage loan purchase agreement, commercial mortgage loans with an unpaid principal balance of $67.8 million at an aggregate purchase price of $69.2 million.
Commercial Mortgage Servicing Oversight Agreement
We have also entered into a commercial mortgage servicing oversight agreement with our Servicer that governs its oversight of the master and/or special servicing performed by third party servicers in connection with certain commercial mortgage loans we acquire. For the oversight services performed under this agreement, we are required to pay our Servicer a fee equal to 5 basis points per annum based on the UPB of the related commercial mortgage loans for which it provides oversight servicing.
During Fiscal 2017, we paid $23,000 in commercial mortgage loan oversight servicing fees to our Servicer.
Reimbursement Agreement
In connection with the initial public offering of our common shares on August 4, 2009, or the IPO, we entered into a reimbursement agreement with our Manager pursuant to which we agreed to reimburse our Manager for the $2.9 million payment that it made to the underwriters for the IPO, or the Conditional Reimbursement, if we satisfied certain performance measures over a specified period of time. Effective February 1, 2013, we amended the terms of the reimbursement agreement to provide for our payment to our Manager of the Conditional Reimbursement if we are required to pay our Manager performance incentive fees under our management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The payment of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12-month period of approximately $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million. The reimbursement agreement also provides for the payment to the IPO underwriters of the payment that we agreed to make to them at the time of the IPO if we satisfied certain performance measures over a specified period of time. As our Manager earns performance incentive fees under our management agreement, the IPO underwriters will be paid at a rate of $20 of payments for every $100 of performance incentive fees earned by our Manager. The payment to the underwriters is subject to a maximum reimbursement in any particular 12-month period of approximately $2.0 million and the maximum amount that may be paid under the agreement is $5.9 million. The term of the reimbursement agreement expires on February 1, 2019.
Our Manager received $30,000 in reimbursement payments from us during Fiscal 2017.
Approval of Related Party Transactions
Our Code of Business Conduct and Ethics requires everyone subject to the code to be scrupulous in avoiding a conflict of interest as it relates to our interests and the interests of our officers and trustees or the interests of the employees, officers and directors of our Manager and Servicer when such individuals are acting for or on our behalf. The code prohibits us from, among other things, entering into a transaction or a business relationship with a related party or an immediate family member of such related person or with a company in which such a related party or such immediate family member has a substantial financial interest, unless such transaction and relationship are disclosed to and approved in advance by our Board.
We have also adopted a written policy that specifically governs related party transactions. The related party transactions policy generally prohibits any related party transaction unless it is reviewed and approved by our Related Party Matters Committee and/or a majority of our independent trustees in accordance with the policy. With certain exceptions, a related party transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries) were, are or will be a participant and the amount involved exceeds $120,000 in the aggregate in any calendar year, and in which any related party has, had or will have a direct or indirect interest. A related party is any person who is, or at any time since the beginning of our last fiscal year was, a trustee or executive officer of our Company or a nominee to become a trustee of our Company; any person who is known to be the
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beneficial owner of more than 5% of any class of our voting securities; any immediate family member of any of the foregoing persons (which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of any of the foregoing persons); and any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest. In determining whether to approve a related party transaction, the Related Party Matters Committee and/or independent trustees consider all facts and circumstances that they deem relevant to the transaction, including, among other things, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related partys interest in the transaction. The Related Party Matters Committee has also retained the services of an independent consultant who assists the Related Party Matters Committee in reviewing certain related party transactions.
The related party transactions policy governs the process for identifying potential related party transactions and seeking review, approval and/or ratification of such transactions. In addition, each of our trustees and executive officers is required to complete an annual disclosure questionnaire and report all transactions with us in which they and their immediate family members had or will have a direct or indirect material interest with respect to us. We review these questionnaires and, if we determine that it is necessary, discuss any reported transactions with our Related Party Matters Committee and/or our Board in accordance with the related party transactions policy.
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ANNUAL REPORT ON FORM 10-K |
Our Annual Report on Form 10-K for Fiscal 2017, which contains our consolidated financial statements for Fiscal 2017, accompanies this Proxy Statement, but is not a part of our soliciting materials. Shareholders of record as of the record date may obtain, without charge, a paper copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the SEC, including the financial statements and schedules thereto, without the accompanying exhibits, upon written request to Investor Relations, PennyMac Mortgage Investment Trust, 3043 Townsgate Road, Westlake Village, California 91361. A list of exhibits is included in our Annual Report on Form 10-K and exhibits are available from us upon the payment to us of the cost of furnishing them. Our Annual Report on Form 10-K is also available on our website, www.pennymac-reit.com, under SEC Filings, A list of exhibits is included in the Form 10-K and exhibits are available from us upon payment to us of the cost of furnishing them.
Section 16(a) Beneficial Ownership Reporting Compliance
We believe that based solely upon our review of copies of forms we have received or written representations from reporting persons, during Fiscal 2017, all filing requirements under Section 16(a) of the Exchange Act applicable to our officers, trustees and beneficial owners of more than ten percent of our common shares were complied with on a timely basis.
Other Matters for Consideration at the Annual Meeting
As of the date of this Proxy Statement, our Board does not know of any matter that will be presented for consideration at the Annual Meeting other than as described in this Proxy Statement. If any other matters are properly presented at the Annual Meeting, your signed proxy card authorizes Stanford L. Kurland, our Executive Chairman, and Derek W. Stark, our Secretary, to vote on those matters according to their best judgment.
Householding of Proxy Materials
As permitted by the SEC, we will deliver a single copy of the notice, proxy statement and annual report to shareholders who have the same address and last name, unless we have received contrary instructions from such shareholders. Each shareholder will continue to receive a separate proxy card. This procedure, called householding, will reduce the volume of duplicate information you receive and reduce our printing and postage costs, which is consistent with our corporate sustainability efforts. We will promptly deliver a separate copy of the proxy statement and annual report to any such shareholder upon written or oral request. A shareholder wishing to receive a separate proxy statement or annual report can notify us at Investor Relations, PennyMac Mortgage Investment Trust, 3043 Townsgate Road, Westlake Village, California 91361, telephone: (818) 224-7028. Similarly, shareholders currently receiving multiple copies of these documents can request the elimination of duplicate documents by contacting us as described above.
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INFORMATION CONCERNING VOTING AND SOLICITATION |
Information Concerning Voting and Solicitation
General Meeting Information
Our Annual Meeting will be held at our corporate offices located at 3043 Townsgate Road, Westlake Village, California 91361, on Tuesday, June 5, 2018 at 11:00 a.m. Pacific Time, subject to any postponements or adjournments thereof. The Board is soliciting proxies to be voted at our Annual Meeting. Pursuant to rules adopted by the Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials primarily via the Internet, rather than mailing paper copies of these materials to each shareholder. On or about April 23, 2018, we began mailing a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access the proxy materials, vote, and request paper copies of the proxy materials. Access to the proxy materials and online voting will be available at www.proxyvote.com. We believe this process expedites shareholders receipt of the proxy materials, lowers the cost of printing and distribution, and reduces the environmental impact associated with the Annual Meeting.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on June 5, 2018
This Notice of 2018 Annual Meeting of Shareholders, Proxy Statement and 2017 Annual Report to Shareholders, which includes our Annual Report on Form 10-K for Fiscal 2017, are available at www.proxyvote.com. At this website, you will find a complete set of the following proxy materials: Notice of 2018 Annual Meeting of Shareholders, Proxy Statement and 2017 Annual Report and form proxy card. You are encouraged to access and review all of the important information contained in the proxy materials before submitting a proxy or voting at the Annual Meeting.
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INFORMATION CONCERNING VOTING AND SOLICITATION |
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PENNYMAC MORTGAGE INVESTMENT TRUST 3043 TOWNSGATE ROAD
WESTLAKE VILLAGE, CA 91361
VOTE BY INTERNETwww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting. Have your proxy card in hand
when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and
annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to
receive or access proxy materials electronically in future years.
VOTE BY
PHONE1-800-690-6903
Use any touch-tone
telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or
return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP
THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
The Board of Trustees recommends you vote FOR the election of
the three Class III Trustees as disclosed in Proposal 1:
1. To elect our Class III Trustees.
Nominees For Against Abstain
1A Stanford L. Kurland 0 0 0
1B David A. Spector 0 0 0 NOTE: Such other business as may properly come before the meeting and any postponement or adjournment thereof.
1C Randall D. Hadley 0 0 0
The Board of Trustees recommends you vote FOR
Proposals 2 and 3: For Against Abstain
2. To ratify the appointment of Deloitte &
Touche 0 0 0 LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.
3. To approve, by non-binding vote, our executive 0 0 0 compensation.
For address change/comments, mark here. 0 (see reverse for instructions) Yes No Please indicate
if you plan to attend this meeting 0 0 Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such.
Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
0000377088_1 R1.0.1.17
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice of 2018 Annual Meeting of
Shareholders, Proxy Statement and 2017 Annual Report to Shareholders, which includes our Annual Report on Form 10-K, are available at www.proxyvote.com
PENNYMAC MORTGAGE INVESTMENT TRUST Annual Meeting of Shareholders June 5, 2018 11:00 AM PDT
THIS PROXY IS
SOLICITED BY THE BOARD OF TRUSTEES
The undersigned hereby appoints Stanford L. Kurland and Derek W. Stark, and each of them, with the power to act without the other and with
power of substitution, as proxies and attorneys-in-fact, and hereby authorizes them to represent and vote, as provided on the other side, all of the shares of PennyMac
Mortgage Investment Trust the undersigned is entitled to vote, and, in their discretion, to vote upon other such business as may properly come before the 2018 Annual Meeting of Shareholders of the Company to be held June 5, 2018, or at any
adjournment or postponement thereof, with all the powers the undersigned would possess if present at the meeting.
This proxy, when properly executed, will be voted in the
manner directed herein. If no such direction is made, this proxy will be voted in accordance with the recommendations of the Board of Trustees.
Address change/comments:
(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
0000377088_2 R1.0.1.17