| 6101 Condor Drive Moorpark, CA 93021 | |
July 31, 2014
Ms. Kristi Marrone
Staff Accountant
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
SUBJECT: | File No. 001-34416 Response to your comment letter PennyMac Mortgage Investment Trust Form 10-K for the Fiscal Year Ended December 31, 2013 Filed February 28, 2014 |
Dear Ms. Marrone:
I am writing in response to your letter dated July 17, 2014 regarding your review of the Annual Report on Form 10-K of PennyMac Mortgage Investment Trust (the “Company”) for the year ended December 31, 2013 as filed on February 28, 2014.
Following are our responses to your comments. For ease of review, we have reprinted your comments in bold face followed by our responses.
Form 10-K for the Fiscal Year Ended December 31, 2013 filed February 28, 2014
Liquidity and Capital Resources, page 87
| 1. | We note that you disclosed your leverage ratio in your 2013 Q4 earnings call. To the extent used by management, please disclose your leverage coverage ratio in future Exchange Act periodic filings. |
Ms. Kristi Marrone
July 31, 2014
Page 2 of 5
We will add our leverage ratio to future Exchange Act periodic filings as shown in bold text below:
As of December 31, 2013 and December 31, 2012, we financed our investments in mortgage backed securities, our inventory of mortgage loans acquired for sale at fair value, mortgage loans at fair value, mortgage loans at fair value held by variable interest entity, and real estate acquired in settlement of loans under agreements to repurchase and forward purchase agreements as follows:
| December 31, 2013 | December 31, 2012 | |||||||
| (dollars in thousands) | ||||||||
Assets financed | $ | 3,447,587 | $ | 1,944,973 | ||||
Total assets in classes of assets financed | $ | 3,787,478 | $ | 2,253,233 | ||||
Borrowings | $ | 2,431,600 | $ | 1,256,102 | ||||
Percentage of invested assets pledged | 91 | % | 86 | % | ||||
Advance rate against pledged assets | 71 | % | 65 | % | ||||
Leverage ratio (1) | 1.83 | x | 1.05 | x | ||||
| (1) | All borrowings divided by shareholders’ equity at period end. |
| 2. | We note your quantification of the average balance outstanding and maximum daily amount outstanding for repurchase agreements on an annualized basis here and in the notes to the financial statements. Please expand your disclosure in future filings to quantify the average quarterly balance for each category of repurchase agreement for each of the past three years. In addition, quantify the period end balance for each of those quarters and the maximum balance at any month-end. Explain the causes and business reasons for significant variances among these amounts. |
Beginning late in 2013, certain of our repurchase agreements began providing financing eligibility across multiple types of collateral. Therefore, providing information regarding available borrowing capacity at period end became relevant only in total for each such agreement. Further, we manage our repurchase borrowing levels by facility and contractual limitations across asset classes. As a result, beginning with the quarter ended March 31, 2014, we have provided our repurchase agreement disclosures as a single item, “assets sold under agreements to repurchase” consistent with how we view and manage such borrowings.
In the Liquidity and Capital Resources section of future Annual Reports on Form 10-K, we will quantify the average quarterly balance for our asset repurchase agreements for each of the past three years, the period-end balance for each of those quarters, and the maximum balance outstanding during each quarter. We will also explain the cause and business reason for material variances among these amounts.
Ms. Kristi Marrone
July 31, 2014
Page 3 of 5
Consolidated Balance Sheets, page F-1
| 3. | We note that you separately present the assets and liabilities held by your consolidated variable interest entity on the balance sheet. In future filings, please recast your balance sheet to present the consolidated totals for each line item required by Rule 5-02 of Regulation S-X. Please note that you may state parenthetically after each line item the amount that relates to consolidated VIEs, or you may include a table following the consolidated balance sheets to present assets and liabilities of consolidated VIEs that have been included in the preceding balance sheet. |
Changes to our balance sheet with respect to the presentation of VIEs will be as follows in future filings. New text is presented in bold face:
| December 31, | ||||||||
| 2013 | 2012 | |||||||
| (in thousands, except share data) | ||||||||
| ASSETS | ||||||||
Cash | $ | 27,411 | $ | 33,756 | ||||
Short-term investments | 92,398 | 39,017 | ||||||
Mortgage-backed securities at fair value | 197,401 | — | ||||||
Mortgage loans acquired for sale at fair value (includes $454,210 and $947,522 pledged to secure mortgage loans acquired for sale under agreements to repurchase) | 458,137 | 975,184 | ||||||
Mortgage loans at fair value (includes $2,479,739 and $956,583 pledged to secure mortgage loans sold under agreements to repurchase) | 2,600,317 | 1,189,971 | ||||||
Mortgage loans under forward purchase agreements at fair value (includes $218,128 pledged to secure borrowings under forward purchase agreements) | 218,128 | — | ||||||
Excess servicing spread purchased from PennyMac Financial Services, Inc. | 138,723 | — | ||||||
Derivative assets | 7,976 | 23,706 | ||||||
Real estate acquired in settlement of loans (includes $98,109 and $23,834 pledged to secure real estate acquired in settlement of loans sold under agreements to repurchase) | 138,942 | 88,078 | ||||||
Real estate acquired in settlement of loans under forward purchase agreements, pledged to secure forward purchase agreements | 9,138 | — | ||||||
Mortgage servicing rights (includes $26,452 and $1,346 carried at fair value) | 290,572 | 126,776 | ||||||
Servicing advances | 59,573 | 32,191 | ||||||
Due from PennyMac Financial Services, Inc. | 6,009 | 4,829 | ||||||
Other assets | 66,192 | 46,155 | ||||||
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Total assets | $ | 4,310,917 | $ | 2,559,663 | ||||
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| LIABILITIES | ||||||||
Assets sold under agreements to repurchase | $ | 2,039,605 | $ | 1,256,102 | ||||
Borrowings under forward purchase agreements | 226,580 | — | ||||||
Asset-backed secured financing at fair value | 165,415 | — | ||||||
Exchangeable senior notes | 250,000 | — | ||||||
Derivative liabilities | 1,961 | 967 | ||||||
Accounts payable and accrued liabilities | 71,561 | 48,285 | ||||||
Due to PennyMac Financial Services, Inc. | 18,636 | 12,216 | ||||||
Income taxes payable | 59,935 | 36,316 | ||||||
Liability for losses under representations and warranties | 10,110 | 4,441 | ||||||
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Total liabilities | 2,843,803 | 1,358,327 | ||||||
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Commitments and contingencies | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 70,458,082 and 58,904,456 common shares, respectively | 705 | 589 | ||||||
Ms. Kristi Marrone
July 31, 2014
Page 4 of 5
| December 31, | ||||||||
| 2013 | 2012 | |||||||
| (in thousands, except share data) | ||||||||
Additional paid-in capital | 1,384,468 | 1,129,858 | ||||||
Retained earnings | 81,941 | 70,889 | ||||||
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Total shareholders’ equity | 1,467,114 | 1,201,336 | ||||||
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Total liabilities and shareholders’ equity | $ | 4,310,917 | $ | 2,559,663 | ||||
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Assets and liabilities of consolidated variable interest entities included in total assets above | ||||||||
Assets | ||||||||
Mortgage loans at fair value (includes $516,473 sold under agreement to repurchase and financed under asset-backed secured financing at fair value) | $ | 523,652 | $ | — | ||||
Other assets – interest receivable | 1,584 | — | ||||||
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| $ | 525,236 | $ | — | |||||
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Liabilities | ||||||||
Asset-backed secured financing at fair value | $ | 165,415 | $ | — | ||||
Accounts payable and accrued expenses – interest payable | 497 | — | ||||||
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| $ | 165,912 | $ | — | |||||
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Consolidated Statements of Income, page F-2
| 4. | To the extent that Other expenses remains material to the income statement, please consider disaggregating its components on the face of the statement or in a note to the financial statements. |
We will add a note to our financial statements summarizing the significant components of Other expenses in future filings as shown below:
Note 34—Other Expenses
Other expenses is summarized below:
| Year ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (in thousands) | ||||||||||||
Common overhead allocation from PFSI | $ | 10,423 | $ | 4,189 | $ | 3,981 | ||||||
Loan origination | 4,584 | 752 | 71 | |||||||||
Servicing and collection costs | 1,861 | 1,572 | 2,160 | |||||||||
Securitization expenses | 1,743 | — | — | |||||||||
Insurance | 889 | 762 | 722 | |||||||||
Technology | 825 | 701 | 581 | |||||||||
Other | 2,736 | 1,581 | 372 | |||||||||
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| $ | 23,061 | $ | 9,557 | $ | 7,887 | |||||||
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Ms. Kristi Marrone
July 31, 2014
Page 5 of 5
You may call me at (818) 224-7434 if you require clarification or have additional questions. I can also be reached by U.S. mail or by e-mail atanne.mccallion@pnmac.com.
| Sincerely, |
/s/ Anne D. McCallion |
| Anne D. McCallion |
| Chief Financial Officer |