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Press Release

Five Oaks Investment Corp. Reports Third Quarter 2015 Financial Results
Adopted A More Defensive Posture In The Face Of Credit Market Volatility

NEW YORK, Nov. 9, 2015 /PRNewswire/ -- Five Oaks Investment Corp. (NYSE: OAKS) ("we", "Five Oaks" or "the Company") today announced its financial results for the third quarter ended September 30, 2015. For the third quarter, the Company reported a GAAP net loss of $2.2 million, or $0.15 per basic and diluted share, a comprehensive loss of $2.0 million, or $0.14 per basic and diluted share, and core earnings* of $3.6 million, or $0.24 per basic and diluted share. The Company also reported a net book value of $10.26 per share on a basic and diluted basis at September 30, 2015. 

Third Quarter and Subsequent Events Summary

  • We realized a negative economic return** on our common stock of 1.4%, or 5.6% annualized, comprised of a $0.45 decrease in net book value per share that exceeded a $0.30 dividend per common share.
  • Reflecting our concern with market volatility in general, and credit market conditions in particular, we reduced our MBS investment portfolio (on a non-GAAP basis) by 13.3% during the quarter, primarily by sales of Non-Agency RMBS.
  • Based on our cautious market views, we have continued to reduce our Non-Agency RMBS exposure to approximately $138 million at October 31, 2015, and to reinvest capital into Agency hybrid ARMs, increasing our Agency RMBS assets to approximately $386 million at October 31, 2015.
  • We have priced and expect to close this week our second proprietary shelf securitization of prime jumbo loans, creating an investment package of B-notes and interest only securities for our REIT. We also anticipate creating and retaining all of the mortgage servicing rights in our taxable REIT subsidiary.

*    Core Earnings is a non-GAAP measure that we define as GAAP net income, excluding impairment losses, realized and unrealized gains or losses on the aggregate portfolio and certain non-recurring upfront costs related to securitization transactions. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments.

**  Economic return is a non-GAAP measure that we define as the sum of the change in net asset value per common share and dividends declared on our common stock during the period over the beginning net asset value per common share.

Management Observations

David Carroll, Five Oaks' Chairman and CEO commented: "In the third quarter, financial markets experienced a continuation of the prior quarter's volatility as equities, emerging markets, CMBS and high yield credit all underperformed. We maintained our defensive positioning in the third quarter, building liquidity by opportunistically selling legacy non-agency securities which we believe have leveled off in value together with certain highly rated credit positions that may be susceptible to spread widening and/or reduced liquidity. Notwithstanding spread volatility, the underlying credit metrics in our core portfolio of multi-family and prime jumbo loans and securities remain solid. In the quarter we saw our book value decline by 4.2% which we attribute predominantly to unrealized losses on our investment securities due to the observed credit spread widening, as well as swap market dislocations which negatively affected the value of our interest rate derivative instruments.  In the face of continued economic and interest rate uncertainty, we remain focused on capital preservation rather than maximization of returns, though we do note that spread widening has improved reinvestment opportunities for our REIT. Reflecting our cautious market views, we have continued to reduce our Non-Agency RMBS exposure to approximately $138 million at October 31, 2015, and we have, as noted above, increased our allocation to Agency hybrid ARMs.

We have priced and anticipate closing this week our second proprietary shelf securitization of prime jumbo loans, creating an investment package of B-notes and interest only securities for our REIT. We also anticipate creating and retaining all of the excess servicing rights in our taxable REIT subsidiary. We view this second transaction as another important step in our operating company business strategy. Although we had anticipated completing the process of being approved to fund prime jumbo QM loans against FHLBI advances during the third quarter, the process and related work continues". 

Investment Portfolio and Capital Allocation

The following table summarizes certain characteristics of our investment portfolio and the related allocation of our equity capital on a non-GAAP combined basis as of September 30, 2015:

 

For the period ended September 30, 2015

Agency MBS

Multi-Family MBS (1)(2)

Non-Agency RMBS (1)(2)

Residential Loans

Unrestricted Cash  (3)

Total

Amortized Cost

222,016,743

182,674,523

186,741,140

63,845,726

27,482,330

682,760,462

Market Value

227,064,571

191,209,068

179,870,187

65,920,570

27,482,330

691,546,726

Repurchase Agreements

(213,456,000)

(114,856,000)

(134,430,000)

(52,998,963)

-

(517,740,963)

Hedges

(1,069,832)

(425,393)

-

-

-

(1,495,225)

Other (4)

3,830,614

156,110

230,832

221,729

8,284

4,447,569

Restricted Cash

5,367,832

2,817,044

3,359,883

-

-

11,544,759

Equity Allocated

19,737,185

78,900,829

49,030,902

13,143,336

27,490,614

188,302,866








Debt/Net Equity (5)

10.92

1.46

2.74

4.03

-

2.75








For the Quarter Ended September 30, 2015

Agency MBS

Multi-Family MBS

Non-Agency RMBS

Residential Loans

Unrestricted Cash

Total

Yield on Earning Assets (6)

2.62%

7.07%

4.53%

4.12%

-

4.45%

Less Cost of Funds

1.59%

1.42%

1.09%

2.47%

-

1.47%

Net Interest Margin (7)

1.03%

5.65%

3.43%

1.65%

-

2.97%















(1) Information with respect to Non-Agency RMBS and Multi-Family MBS, and the resulting total is presented on a non-GAAP basis. On a GAAP basis, which excludes the impact of consolidation of the FREMF 2011-K13, FREMF 2012-KF01, JPMMT 2014-OAK4 and CSMC 2014-OAK1 Trusts, the fair value of our investments in Non-Agency RMBS is $129,863,572, and the fair value of our investments in Multi-Family MBS is $105,630,744.

(2) Includes the fair value of our net investments in the FREMF 2011-K13, FREMF 2012-KF01, JPMMT 2014-OAK4, and CSMC 2014-OAK1 Trusts.

(3) Includes cash and cash equivalents.

(4) Includes interest receivable, goodwill, prepaid and other assets, interest payable, dividend payable and accrued expenses and other liabilities.

(5) Ratio is a reflection of the average haircuts for each asset categories. It does not reflect or include the unrestricted cash that the Company set aside for these asset categories.

(6) Information is presented on a non-GAAP basis. On a GAAP basis, the total yield on average interest earning assets is 4.35%.

(7) Net Interest Margin is the difference between our Yield on Earning Assets and our Cost of Funds.

 

Comparative Expenses

The following table provides a detailed breakdown of the composition of our expenses on a non-GAAP basis for the quarter ended September 30, 2015:

Expenses

For the quarter ended
September 30, 2015


For the quarter ended
June 30, 2015







Management Fees

$               703,167


$               698,629


G&A Expenses (1)

$               467,770


$               668,265


Operating Expenses Reimbursable to Manager

$            1,338,272


$            1,055,075


Other Operating Expenses

$               (20,377)


$               586,298


Compensation Expense

$                 64,207


$                 62,348


Total Expenses

$            2,535,039


$            3,070,615







Period-End Capital

$        188,302,866


$        194,844,895







Management Fees

$               703,167


$               698,629


G&A, Other Operating Expenses and Reimbursable

$            1,506,391


$            1,897,589


Compensation Expenses

$                 64,207


$                 62,348


Expenses related to Prime Jumbo Loans

$               279,274


$               412,049







Management Fees as % of Capital

1.49%


1.43%


G&A, Other, Reimbursable and Compensation as % of Capital

3.34%


4.02%


Expenses related to Prime Jumbo Loans as % of Capital

0.59%


0..85%







(1) Excludes $951,498 and $1,049,096 in expense attributable to the consolidated trusts for the quarters ended September 30, 2015 and June 31, 2015, respectively.

The decrease in G&A, Other Operating, Reimbursable and Compensation Expenses as a percentage of Capital over the past quarter is primarily a function of lower legal expenses during the quarter and the capitalization of certain previously expensed issuance and securitization costs.

The decrease in expenses related to the Prime Jumbo loan business is due to the lower volume of loans purchased in the third quarter of 2015 relative to the second quarter.

Operating Performance

The following table summarizes the Company's GAAP and non-GAAP earnings measurements for the quarter ended September 30, 2015.

               


Three months Ended September 30, 2015

Three months Ended June 30, 2015









Earnings

Earnings

Per diluted weighted share

Annualized return on average equity


Earnings

Per diluted weighted share

Annualized return on average equity

Core Earnings *

$

3,562,865

$

0.24

7.61%


$

4,432,716

$

0.30

9.48%

GAAP Net Income (Loss)

$

(2,185,546)

$

(0.15)

(4.67)%


$

3,162,595

$

0.21

6.76%

Comprehensive Income (Loss)

$

(2,010,767)

$

(0.14)

(4.30)%


$

(5,100,031)

$

(0.35)

(10.90)%

















Weighted Ave Shares Outstanding



14,724,750





14,721,495


Weighted Average Equity


$

189,415,458




$

189,674,397


                                                                                                                                        

Stockholders' Equity and Book Value Per Share

As of September 30, 2015, our stockholders' equity was $188.3 million and our book value per common share was $10.26 on a basic and fully diluted basis.

Dividends

The Company declared a dividend of $0.10 per share of common stock for the months of October, November and December 2015. Based on the closing price of $6.32 as at September 30, 2015, this equates to an annualized dividend yield of 19.0%.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the U.S. securities laws that are subject to risks and uncertainties.  These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. You can identify forward-looking statements by use of words  such as "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions or other comparable terms, or by discussions of strategy, plans or intentions.  Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy.  Forward-looking statements are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company.  Actual results may differ from expectations, estimates and projections and, consequently, you should not rely on these forward looking statements as predictions of future events.  Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control.  Additional information concerning these and other risk factors are contained in the Company's most recent filings with the Securities and Exchange Commission, which are available on the Securities and Exchange Commission's website at www.sec.gov    

All subsequent written and oral forward-looking statements that the Company makes, or that are attributable to the Company, are expressly qualified in their entirety by this cautionary notice.  Any forward-looking statement speaks only as of the date on which it is made.  Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

For financial statement reporting purposes, prior to January 1, 2015, GAAP required us to account for certain of our Non-Agency RMBS and Multi-Family MBS and the associated repurchase agreement financing as Linked Transactions. However, in managing and evaluating the composition and performance of our MBS portfolio, we did not view the purchase of our Non-Agency RMBS or Multi-Family MBS and the associated repurchase agreement financing as transactions that were linked, GAAP also requires us to consolidate the assets and liabilities of the FREMF 2011-K13 Trust, FREMF 2012-KF01, JPMMT 2014-OAK4 and CSMC 2014-OAK1. However, our maximum exposure to loss from consolidation of the consolidated trusts is limited to the fair value of our net investment therein. We therefore have also presented certain information as of December 31, 2014 that includes Multi-Family MBS and Non-Agency RMBS underlying both Linked Transactions and our net investments in the consolidated trusts, and as of September 30, 2015 that includes our net investments in the consolidated trusts. This information as well as core earnings, economic return and comparative expenses constitute non-GAAP financial measures within the meaning of Regulation G, as promulgated by the SEC.  While we believe the non-GAAP information included in this press release provides supplemental information to assist investors in analyzing that portion of our portfolio composed of Non-Agency RMBS and Multi-Family MBS, and to assist investors in comparing our results with other peer issuers, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

Reconciliation of GAAP to Core Earnings

 

GAAP to Core Earnings Reconciliation

Three months Ended




September 30, 2015



Reconciliation of GAAP to non-GAAP Information




Net Income (loss) attributable to common shareholders

$

(2,185,546)



Adjustments for non-core earnings




Realized (Gain) Loss on sale of investments, net

$

(1,464,308)



Realized (Gain) Loss on derivative contracts, net

$

8,262,423



Unrealized (Gain) Loss on derivative contracts, net

$

(1,631,907)



Realized (Gain) Loss on mortgage loans held-for-sale

$

13,666



Unrealized (Gain) Loss on mortgage loans held-for-sale

$

(539,456)



Unrealized (Gain) Loss on mortgage servicing rights

$

488,247



Unrealized (Gain) Loss on multi-family loans held in securitization trusts

$

(1,804,190)



Unrealized (Gain) Loss on residential loans held in securitization trusts

$

1,323,697



Other income

$

(33,374)



Subtotal

$

4,614,798







Other-than-temporary impairments:




Increase (decrease) in credit reserves

$

350,924



Additional other-than-temporary credit impairment losses

$

-



Net other-than-temporary impairments

$

350,924



Other Adjustments




Recognized compensation expense related to restricted common stock

$

5,735



Net swap interest expense

$

(782,870)



Adjustment for consolidated securities/securitization costs

$

1,559,842







Core Earnings

$

3,562,865







Weighted average shares outstanding - Basic and Diluted


14,724,750







Core Earnings per weighted share outstanding - Basic and Diluted

$

0.24



 

Additional Information

As of September 30, 2015, we have determined that we were the primary beneficiary of two Multi-Family MBS securitization trusts, the FREMF 2011-K13 Trust, and the FREMF 2012-KF01 Trust. As a result, we are required to consolidate the trusts' underlying multi-family loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of these trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in multi-family investments to our financial statements as of September 30, 2015 is set forth below:

Multi-Family Loans held in securitization trusts, at fair value

$

1,563,385,916

Multi-Family Securitized Debt Obligations (non-recourse)

$

(1,477,807,591)

Net Carrying Value

$

85,578,325

Multi-Family MBS (1)

$

19,709,701

Multi-Family MBS PO

$

85,921,042

Cash and Other

$

2,547,761

Repurchase Agreements

$

(114,856,000)

Net Capital in Multi-Family

$

78,900,829



(1) Excludes $25,226,771 in Multi-Family MBS that is consolidated


As of September 30, 2015, we have determined that we were the primary beneficiary of two prime jumbo residential mortgage securitization trusts, JPMMT 2014-OAK4 and CSMC 2014-OAK1. As a result, we are required to consolidate the trusts' underlying prime jumbo residential loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of the trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in Non-Agency RMBS to our financial statements as of September 30, 2015 is set forth below:

Residential Loans held in securitization trusts, at fair value (1)

$

445,230,977

Residential Securitized Debt Obligations (non-recourse)

$

(393,218,978)

Net Carrying Value

$

52,011,999

Non-Agency RMBS

$

129,863,573

Cash and Other

$

3,590,715

Repurchase Agreements

$

(134,430,000)

Net Capital in Non-Agency

$

51,036,287



(1) Excludes $2,005,385 in Mortgage Servicing Rights

     

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT") focused with its subsidiaries on investing on a leveraged basis in mortgage and other real estate-related assets, particularly residential mortgage loans, mortgage servicing rights, and mortgage-backed securities ("MBS"), including residential mortgage-backed securities ("RMBS") and multi-family mortgage-backed securities ("Multi-Family MBS"). The Company continues to implement a strategy of transitioning to an operating company focused on credit while maintaining a relative value investment approach across the whole residential mortgage market. The Company's objective is to deliver attractive cash flow returns over time to its investors, and to generate income through its mortgage loan acquisition and securitization business.

Five Oaks Investment Corp. is externally managed and advised by Oak Circle Capital Partners LLC.

Additional Information and Where to Find It

Investors, security holders and other interested persons may find additional information regarding the Company at the SEC's  Internet site at http://www.sec.gov/ or the Company website www.fiveoaksinvestment.com or by directing requests to: Five Oaks Investment Corp., 540 Madison Avenue, 19th Floor, New York, NY 10022, Attention: Investor Relations.

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES





Condensed Consolidated Statements of Operations
































Three


Three








Months Ended


Months Ended








September 30, 2015


September 30, 2014








 (unaudited) 


 (unaudited) 

Revenues:







Interest income:







Available-for-sale securities

$

5,460,965

$

4,513,999



Mortgage loans held-for-sale


618,106


1,310,068



Multi-family loans held in securitization trusts


16,794,338


2,433,318



Residential loans held in securitization trusts


4,641,887


-



Cash and cash equivalents


4,809


9,802


Interest expense:


-





Repurchase agreements - available-for-sale securities


(1,490,698)


(635,062)



Repurchase agreements - mortgage loans held-for-sale


(354,106)


(721,239)



Multi-family securitized debt obligations


(15,372,832)


(2,239,797)



Residential securitized debt obligations


(3,137,247)


-















Net interest income


7,165,222


4,671,089











Other-than-temporary impairments






Increase in credit reserves


(350,924)


-


Additional other-than-temporary credit impairment losses


-


-















Total impairment losses recognized in earnings


(350,924)


-











Other income:






Realized gain (loss) on sale of investments, net


1,464,308


1,024,168


Unrealized gain (loss) and net interest income from Linked Transactions


-


754,189


Realized gain (loss) on derivative contracts, net


(8,262,423)


(9,079,091)


Unrealized gain (loss) on derivative contracts, net


1,631,907


10,009,742


Realized gain (loss) on mortgage loans held-for-sale


(13,666)


(73,132)


Unrealized gain (loss) on mortgage loans held-for-sale


539,456


474,095


Unrealized gain (loss) on mortgage service rights


(488,247)


-


Unrealized gain (loss) on multi-family loans held in securitization trusts


1,804,190


285,328


Unrealized gain (loss) on residential loans held in securitization trusts


(1,323,697)


-


Other income


33,374


-















Total other income (loss)


(4,614,798)


3,395,299











Expenses:







Management fee


703,167


790,188


General and administrative expenses


1,419,268


728,488


Operating expenses reimbursable to Manager


1,338,272


843,943


Other operating expenses


(20,377)


439,198


Compensation expense


64,207


51,408















Total expenses


3,504,537


2,853,225















Net income (loss) before provision for income taxes


(1,305,037)


5,213,163





(Provision for) benefit from income taxes


-


(179,136)





Net income (loss)


(1,305,037)


5,034,027















Dividends to preferred stockholders


(880,509)


(880,509)















Net income (loss) attributable to common stockholders

$

(2,185,546)

$

4,153,518












Earnings (loss) per share:







Net income (loss) attributable to common stockholders (basic and diluted)

$

(2,185,546)

$

4,153,518




Weighted average number of shares of common stock outstanding


14,724,750


14,640,065




Basic and diluted net income per share

$

(0.15)

$

0.28



Dividends declared per share of common stock

$

0.30

$

0.38











 

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES





Condensed Consolidated Balance Sheets
































September 30, 2015


December 31, 2014








 (unaudited) 



ASSETS





Available-for-sale securities, at fair value (includes pledged securities of $462,558,886 and $366,103,204 for September 30, 2015 and December 31, 2014, respectively)

$

462,558,886

$

368,315,738

Mortgage loans held-for-sale, at fair value


61,999,865


54,678,382

Multi-family loans held in securitization trusts, at fair value


1,557,938,059


1,750,294,430

Residential loans held in securitization trusts, at fair value


443,717,026


631,446,984

Mortgage servicing rights, at fair value


1,915,317


-

Linked transactions, net, at fair value


-


60,818,111

Cash and cash equivalents


27,482,330


32,274,285

Restricted cash






11,544,758


11,400,645

Deferred offering costs



1,022,427


945,661

Deferred securitization costs


189,244



Accrued interest receivable


8,606,987


10,962,663

Dividends receivable




26,022


-

Investment related receivable


837,045


979,509

Derivative assets, at fair value


-


21,550

FHLB Stock






2,403,000


-

Other assets







361,661


71,599















Total assets

$

2,580,602,627

$

2,922,209,557











LIABILITIES AND STOCKHOLDERS' EQUITY















LIABILITIES:








Repurchase agreements:






Available-for-sale securities

$

413,342,000

$

544,614,000


Mortgage loans held-for-sale


52,998,963


50,263,852

FHLB Advances





51,400,000


-

Multi-family securitized debt obligations


1,472,569,737


1,670,573,456

Residential securitized debt obligations


392,065,402


432,035,976

Derivative liabilities, at fair value


1,495,225


2,289,058

Accrued interest payable


6,850,611


8,238,924

Dividends payable




29,349


39,132

Fees and expenses payable to Manager


920,000


1,062,000

Other accounts payable and accrued expenses


628,474


295,029















Total liabilities


2,392,299,761


2,709,411,427











STOCKHOLDERS' EQUITY:










Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized, 8.75% Series A cumulative redeemable, $25 liquidation preference, 1,610,000 and 1,610,000 issued and outstanding at September 30, 2015 and December 31, 2014, respectively


37,156,972


37,156,972

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 14,718,750 and 14,718,750 shares issued and outstanding, at September 30, 2015 and December 31, 2014, respectively


146,953


146,953

Additional paid-in capital


189,038,520


189,332,874

Accumulated other comprehensive income (loss)


7,956,008


7,208,350

Cumulative distributions to stockholders


(50,495,523)


(32,406,541)

Accumulated earnings



4,499,936


11,359,522















Total stockholders' equity


188,302,866


212,798,130















Total liabilities and stockholders' equity

$

2,580,602,627

$

2,922,209,557











 

 

Five Oaks Investment Corp. logo.

 

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SOURCE Five Oaks Investment Corp.

David Oston, Chief Financial Officer, Five Oaks Investment Corp., (212) 257 5073