NEW YORK, Aug. 8, 2014 /PRNewswire/ — Five Oaks Investment Corp. (NYSE: OAKS) ("Five Oaks" or "the Company") today announced its financial results for the quarter ended June 30, 2014.

Quarterly Highlights

  • Reported comprehensive net income attributable to common stockholders of $0.84 for the quarter ended June 30, 2014, including net income per common share of $0.34 and other comprehensive income ("OCI") of $0.50 per common share.
  • Raised $16.3 million in net proceeds from a public offering of an additional 690,000 shares of our Series A Preferred Stock originally issued in December 2013.
  • Raised $38.3 million in net proceeds from a follow-on offering of 3,500,000 shares of common stock, further increasing our public float. An additional 525,000 shares were issued following the exercise of the underwriters' overallotment option after quarter end.
  • Reported Book Value of $12.76 per share on a basic and diluted basis at June 30, 2014.
  • Delivered a positive economic return on common equity of 2.3%, or 9.2% annualized, comprised of $0.38 dividend per common share more than offsetting a modest $0.08 decrease in net book value per share, in the context of a quarter during which we increased our common equity share count by approximately 33%.
  • Continued signing up mortgage lending correspondent relationships, and concluded our first investments in prime jumbo mortgage loans.
  • Declared a monthly dividend of $0.125 per share for July, August and September 2014.

Management Observations

David Carroll, Five Oaks' Chairman and CEO commented: "The relatively sanguine interest rate environment during the first quarter of 2014 continued in the second quarter. Additionally, credit spreads tightened, which was positive for Non-Agency RMBS prices, an important contributor to another quarter's positive economic return to common stockholders notwithstanding our common stock offering during the quarter. We concentrated our efforts in the second quarter on further build-out of our residential whole loan activity. We made good progress in signing up mortgage loan correspondents, settled our first loans, and agreed to purchase an additional amount of prime loans that will settle in the third quarter. Just as importantly, we believe we are well placed to complete our first participation in a jumbo securitization during the third quarter. We anticipate contributing a meaningful proportion of the final pool, and have since undertaken credit diligence on the balance of the projected loan pool, which we believe will serve to enhance the ultimate returns on the equity and subordinated securities we plan to retain. Since last year we have been talking about the importance of building an operating company model focused on new issue mortgage credit opportunities, and I believe we have made important progress in this endeavor during the second quarter of 2014.

"We were able to increase our outstanding preferred stock during the second quarter, which was non-dilutive to common stockholders. We did also issue additional common stock which was dilutive to existing holders, not just to broaden our investor base and improve trading liquidity, but also importantly to be able to execute on our business strategy. In particular, as we continue building out the whole loan acquisition/securitization business, our ability to negotiate incremental loan warehouse capacity, to improve financing terms, and to secure the necessary securitization counterparty credit approvals are all critically dependent on the size of our equity capital. We believe the extent of loan purchase and securitization activity we expect to conclude in the third quarter and beyond would be very difficult to consummate on economic, or indeed any, terms in the absence of the second quarter's meaningful capital-raising activities."

Second Quarter 2014 Operating Results

For the quarter ended June 30, 2014, the Company reported net income attributable to common stockholders of $3.8 million, or $0.34 per basic and diluted share. Our comprehensive income attributable to common stockholders was $9.4 million, or $0.84 per basic and diluted share. Besides net interest income of $3.9 million for the second quarter, the main driver of the result was net other income of $2.8 million. Unrealized gain and net interest income on Linked Transactions totaling $8.8 million and realized gains of $0.8 million on sale of investments, generally reflecting higher Non-Agency RMBS prices, more than offset realized and unrealized losses on derivatives aggregating $6.8 million. Our total expenses for the second quarter were $2.3 million, up 44.2% from the first quarter of 2014, reflecting the increase in our capital base between the two periods.

Stockholders' Equity and Book Value Per Share

As of June 30, 2014, our stockholders' equity was $218.3 million, up 38.0% from $158.1 million at the end of the first quarter. Our book value per common share was $12.76 on a basic and fully diluted basis. This represents a modest 0.6% decline in book value per common share from $12.84 as of March 31, 2014, notwithstanding our capital raising activity, and more than offset by dividends paid during the quarter.

Investment Portfolio

The following table summarizes certain characteristics of our investment portfolio as of June 30, 2014 on a non-GAAP combined basis (which reflects the inclusion of the Non-Agency RMBS and Multi-Family MBS underlying our Linked Transactions combined with our GAAP-reported RMBS):

$ in thousands

 

Principal 

 Balance

 

Unamortized 

 Premium 

 (Discount)

 

Designated 

 Credit 

 Reserve

 

Amortized 

 Cost

 

Unrealized 

 Gain/

 (Loss)

 

Fair 

 Value

 

Net 

 Weighted 

 Average 

 Coupon(1)

   

Average 

 Yield(2)

 

Agency RMBS

                                               

15 year fixed-rate

 

$

2,660

 

$

66

 

$

 

$

2,726

 

$

(24)

 

$

2,702

 

2.50 %

 

1.96 %

30 year fixed-rate

   

122,157

   

6,868

   

   

129,025

   

(3,270)

   

125,755

 

3.50 %

 

2.69 %

Hybrid ARMS

   

369,257

   

37

   

   

369,294

   

3,266

   

372,560

 

2.49 %

 

2.69 %

                                                 

Total Agency RMBS

   

494,074

   

6,971

   

   

501,045

   

(28)

   

501,017

 

2.74 %

 

2.68 %

                                                 

Multi-Family MBS
Including Linked
Transactions

   

158,919

   

(25,025)

   

   

133,894

   

5,448

   

139,342

 

2.11 %

 

5.57 %

                                             

Non-Agency RMBS
Including Linked
Transactions

   

296,512

   

(57,279)

   

(48,337)

   

190,896

   

17,207

   

208,103

 

0.38 %

 

7.88 %

                                                 

Residential Mortgage Loans

   

4,418

   

   

   

4,418

   

93

   

4,511

 

4.18 %

 

4.18 %

Total/Weighted Average
(GAAP)

 

$

953,923

 

$

(75,333)

 

$

(48,337)

 

$

830,253

 

$

22,720

 

$

852,973

 

1.91 %

 

4.35 %

(1) Weighted average coupon is presented net of servicing and other fees.

(2) Average yield incorporates future prepayment assumptions.

(3) Non-Agency RMBS and Multi-Family MBS is presented on a non-GAAP combined basis (which reflects the inclusion of the Non-Agency RMBS and Multi-Family MBS underlying our Linked Transactions combined with our GAAP-reported MBS).

Portfolio Financing and Hedging

At June 30, 2014, the Company financed its MBS investment portfolio with borrowings under master repurchase agreements of $508.3 million, on a GAAP basis, and $706.0 million on a non-GAAP basis (including the repurchase agreement financing associated with the Non-Agency RMBS and Multi-Family MBS underlying Linked Transactions). The Company financed its residential mortgage loans under an additional master repurchase agreement, with borrowings of $4.0 million on both a GAAP and non-GAAP basis at June 30, 2014. Our weighted average borrowing cost under all these agreements was 0.51%, on a GAAP basis, and 0.84% on a non-GAAP basis as of June 30, 2014. As of June 30, 2014, we borrowed 2.3 times our stockholders' equity on a GAAP basis, and 3.3 times on a non-GAAP basis, representing a reduction from 2.8 times and 3.7 times, respectively, as of March 31, 2014.

The Company is also a party to approximately $378 million notional amount of pay-fixed receive-LIBOR swaps that have variable maturities of up to ten years, certain of which have forward start dates. The Company is also party to one interest rate swaption. The following table summarizes our hedging activity as of June 30, 2014:

Current Maturity Date for Interest 

 Rate Swaps

 

Notional 

 Amount

 

Fair Value

 

Fixed 

 Rate Pay

   

Receive 

 Rate

   

Maturity 

 Years

 

3 years or less

 

35,000,000

 

(190,282)

 

0.66 %

 

0.18 %

 

1.6

 

Greater than 3 years and less than 5 years

 

191,000,000

 

(2,174,460)

 

1.66 %

 

0.23 %

 

4.2

 

Greater than 7 years and less than 10 years*

 

95,000,000

 

(4,207,800)

 

2.85* %

 

0.00* %

 

7.1

 

Greater than 10 years*

 

57,000,000

 

(3,458,185)

 

3.29* %

 

0.00* %

 

10.2

 

Total

 

378,000,000

 

(10,030,728)

 

1.51* %

 

0.22* %

 

5.6

 

 *Forward-starting swaps. Fixed rate pay and floating rate receive rates are excluded from the calculation of totals.

   

Option

 

Underlying Swap

Current Option 

 Expiration Date for 

 Interest Rate 

 Swaptions

 

Cost

 

Fair  Value

 

Weighted 

 Average 

 Years to 

 Expiration

 

Notional  

 Amount

 

Pay Rate

   

Weighted  

Average Term 

 (Years)

2 years or less

 

420,000

 

454,792

 

0.8

 

25,000,000

 

3.00%

   

10.0

Dividends

The Company declared a dividend of $0.125 per share of common stock for the months of July, August and September 2014. Based on the closing price of $11.29 as at June 30, 2014, this equates to an annualized dividend yield of 13.3%.

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT"), and as a "hybrid" REIT is focused on investing in, financing and managing a portfolio of mortgage-backed securities ("MBS"), including residential mortgage-backed securities ("RMBS"), multi-family mortgage-backed securities ("Multi-Family MBS"), residential mortgage loans and other mortgage related investments. The Company's objective is to deliver attractive risk-adjusted returns to its investors, primarily through dividends and secondarily through capital appreciation, via an investment approach centered on taking advantage of relative value opportunities available across the whole residential mortgage market.

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

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, GAAP requires 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 do not view the purchase of our Non-Agency RMBS or Multi-Family MBS and the associated repurchase agreement financing as transactions that are linked. We therefore have also presented certain information that includes the Non-Agency RMBS and Multi-Family MBS underlying our Linked Transactions. This information constitutes non-GAAP financial measures within the meaning of Regulation G, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to analyze our MBS portfolio and the performance of our MBS in the same way that we assess our MBS portfolio and such assets. 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, 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.

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

 

Six

 

Six

   

Months Ended

 

Months Ended

 

Months Ended

 

Months Ended

   

June 30, 2014

 

June 30, 2013

 

June 30, 2014

 

June 30, 2013

   

 (unaudited)

 

 (unaudited)

 

 (unaudited)

 

 (unaudited)

Revenues:

               
 

Interest income:

               
   

Available-for-sale securities

$

4,487,279

$

7,350,567

$

8,390,239

$

8,376,715

   

Mortgage loans held-for-sale

 

4,381

 

 

7,517

 

   

Cash and cash equivalents

 

7,006

 

5,862

 

8,593

 

6,775

 

Interest expense:

               
   

Repurchase agreements – available-for-sale securities

 

(602,038)

 

(992,426)

 

(1,162,260)

 

(1,119,174)

   

Repurchase agreements – mortgage loans held-for-sale

 

(5,766)

 

 

(5,766)

 

                 
       

Net interest income

 

3,890,862

 

6,364,003

 

7,238,323

 

7,264,316

                 

Other income:

               
 

Realized gain (loss) on sale of investments, net

 

750,778

 

(14,172,649)

 

(3,457,239)

 

(14,277,894)

 

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

 

8,812,538

 

(1,487,024)

 

14,704,733

 

266,818

 

Realized gain (loss) on derivative contracts, net

 

(849,826)

 

11,136,853

 

(1,692,593)

 

11,065,533

 

Unrealized gain (loss) on derivative contracts, net

 

(5,968,542)

 

7,620,892

 

(11,100,869)

 

7,099,900

 

Unrealized gain on mortgage loans held-for-sale

 

93,242

 

 

93,242

 

                 
       

Total other income (loss)

 

2,838,190

 

3,098,072

 

(1,452,726)

 

4,154,357

                 

Expenses:

               
 

Management fee

 

622,843

 

412,862

 

1,090,378

 

528,002

 

General and administrative expenses

 

380,711

 

177,686

 

632,802

 

300,114

 

Operating expenses reimbursable to Manager

 

870,817

 

727,234

 

1,539,470

 

908,098

 

Other operating expenses

 

375,667

 

91,745

 

505,130

 

99,001

 

Compensation expense

 

54,405

 

82,168

 

134,482

 

84,964

                 
       

Total expenses

 

2,304,443

 

1,491,695

 

3,902,262

 

1,920,179

                 
       

Net income

$

4,424,609

$

7,970,380

$

1,883,335

$

9,498,494

                 
       

Dividends to preferred stockholders

 

(635,923)

 

 

(1,116,495)

 

(2,326)

                 
       

Net income attributable to common stockholders

$

3,788,686

$

7,970,380

$

766,840

$

9,496,168

                 
 

Earnings (loss) per share:

               
   

Net income attributable to common stockholders (basic and diluted)

$

3,788,686

$

7,970,380

$

766,840

$

9,496,168

     

Weighted average number of shares of common stock outstanding

 

11,150,788

 

7,389,250

 

10,001,587

 

4,855,327

     

Basic and diluted income per share

$

0.34

$

1.08

$

0.08

$

1.96

   

Dividends declared per share of common stock

$

0.36

$

0.45

$

0.72

$

0.78

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 
 
   

June 30, 2014

 

December 31, 2013

   

 (unaudited)

   

ASSETS

       

Available-for-sale securities, at fair value (includes pledged securities of $552,380,533 and $444,984,955 for

       

     June 30, 2014 and December 31, 2013, respectively)

$

570,759,674

$

444,984,955

Mortgage loans held-for-sale, at fair value

 

4,510,797

 

Linked transactions, net, at fair value

 

79,931,056

 

33,352,562

Cash and cash equivalents

 

55,814,943

 

33,062,931

Restricted cash

 

43,408,678

 

13,343,173

Deferred offering costs

 

688,281

 

Accrued interest receivable

 

1,473,073

 

1,045,191

Investment related receivable

 

925,412

 

506,892

Derivative assets, at fair value

 

454,792

 

1,839,154

Receivable due from subsidiary

 

 

Other assets

 

237,022

 

66,547

         
       

Total assets

$

758,203,728

$

528,201,405

         

LIABILITIES AND STOCKHOLDERS' EQUITY

       
         

LIABILITIES:

       

Repurchase agreements:

       
 

Available-for-sale securities

$

508,332,000

$

412,172,000

 

Mortgage loans held-for-sale

 

3,957,697

 

Derivative liabilities, at fair value

 

10,723,920

 

839,413

Payable for securities purchased

 

15,492,311

 

Accrued interest payable

 

262,468

 

274,615

Dividends payable

 

29,349

 

42,501

Fees and expenses payable to Manager

 

560,000

 

330,000

Other accounts payable and accrued expenses

 

561,299

 

617,514

         
       

Total liabilities

 

539,919,044

 

414,276,043

         

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 800,000 issued and outstanding at June 30,

       

     2014 and December 31, 2013, respectively

 

37,164,472

 

18,060,898

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 14,189,250 and 7,389,250

       

     shares issued and outstanding, at June 30, 2014 and December 31, 2013, respectively

 

141,703

 

73,563

Additional paid-in capital

 

183,710,458

 

110,129,489

Accumulated other comprehensive income (loss)

 

6,936,783

 

(11,094,954)

Cumulative distributions to stockholders

 

(19,597,803)

 

(11,289,370)

Accumulated earnings

 

9,929,071

 

8,045,736

         
       

Total stockholders' equity

 

218,284,684

 

113,925,362

         
       

Total liabilities and stockholders' equity

$

758,203,728

$

528,201,405

Logo – http://photos.prnewswire.com/prnh/20130321/NY81726LOGO

SOURCE Five Oaks Investment Corp.

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