NEW YORK, May 11, 2015 /PRNewswire/ — Five Oaks Investment Corp. (NYSE: OAKS) ("Five Oaks" or "the Company") today announced its financial results for the quarter ended March 31, 2015. For the first quarter, the Company reported a GAAP net loss of $6.0 million, or $0.41 per basic and diluted share, comprehensive income of  $0.40 per basic and diluted share, and core earnings* of $4.8 million, or $0.32 per basic and diluted share. The Company also reported a net book value of $11.65 per share on a basic and diluted basis at March 31, 2015. 

Quarterly Highlights and Subsequent Event

  • The Company achieved a positive economic return** on its common stock of 0.80%, or 3.19% annualized, comprised of $0.38 dividend per common share more than offsetting a $0.28 decrease in net book value per share.
  • The Company's securitization business continued ramping up the aggregation of prime jumbo loans for securitization. After quarter end, on April 30, 2015, we completed our third prime jumbo securitization in the amount of $267.2 million, and the first off the Company's proprietary program – Oaks Mortgage Trust.
  • On February 24, 2015, Five Oaks Insurance LLC, another wholly owned subsidiary of the Company, became a member of the Federal Home Loan Bank of Indianapolis, or FHLBI.
  • Fixed-rate Agency RMBS assets further reduced to 9% of the portfolio as of March 31, 2015.

*    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: "During the first quarter we navigated relatively well through interest rate markets that once again exhibited significant volatility. Having started the year at 2.12%, the ten-year Treasury rate dropped as low as 1.68% in February as the ECB began its bond buying program and investors bought US Treasuries in the search for some level of yield, before trading back up towards quarter end. This in turn triggered an increase in mortgage prepayment rates, which impacted the values of our mortgage servicing rights and interest only securities. We nevertheless produced another positive economic return for common stockholders in the first quarter.

"The prime jumbo securitization market appears healthy, with around $5.7 billion of issuance in the first four months of the year compared with $8.8 billion for the whole of 2014. We are delighted that this includes the inaugural issuance from our own proprietary program – the $267.2mm Oaks Mortgage Trust 2015-1. Completed in April, the transaction created an investment package of B-notes and interest only securities for our REIT investment portfolio, and we retained all of the excess servicing rights in our taxable REIT subsidiary. With the completion of the transaction we have now created over $600 million in negative duration excess servicing rights from loans that we have underwritten and aggregated. We continue building our client base and have to-date signed up 52 flow loan sellers that, along with our mini-bulk and bulk sellers provide us with a steady source of loans to purchase. OMTS 2015-1 represents the culmination of the aggregation/securitization strategy we have been working on since 2013, and I am confident that by providing us much greater control over the economic levers of this important business, it will enhance the value of our franchise going forward. Allied with our recently announced membership in the Federal Home Loan Bank system, and our expected stable and lower cost funding from that membership, we have made the transition to an operating company focused on new issue mortgage credit opportunities."

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 March 31, 2015:

 

For the period ended March 31, 2015

Agency
MBS

Multi-Family
MBS (1)(2)

Non-Agency
RMBS (1)(2)

Residential
Loans

Unrestricted
Cash  (3)

Total

Amortized Cost

304,296,566

194,574,345

286,284,422

110,775,080

26,290,939

922,221,352

Market Value

310,046,089

201,135,713

291,867,407

114,088,791

26,290,939

943,428,939

Repurchase Agreements

(293,045,000)

(131,768,000)

(223,674,000)

(97,360,852)

(745,847,852)

Hedges

(3,405,839)

(3,405,839)

Other (4)

283,892

119,128

243,224

460,588

(994,038)

112,794

Restricted Cash

9,102,105

587,685

4,634,445

14,324,235

Equity Allocated

22,981,248

70,074,526

73,071,076

17,188,526

25,296,901

208,612,278

             

Debt/Net Equity (5)

12.75

1.88

3.06

5.66

3.58

             

For the Quarter Ended March 31, 2015

Agency
MBS

Multi-Family
MBS

Non-Agency
RMBS

Residential
Loans

Unrestricted
Cash

Total

Yield on Earning Assets (6)

2.79%

6.77%

5.00%

4.10%

4.43%

Less Cost of Funds

1.37%

1.11%

1.14%

2.54%

1.35%

Net Interest Margin (7)

1.42%

5.66%

3.86%

1.56%

3.08%

             
             

(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 $171,914,914 and the fair value of our investments in Multi-Family MBS is $119,165,051.

(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, 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 4.56%.

(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 March 31, 2015:

Expenses

For the quarter ended
March 31, 2015

 

For the quarter ended
December 31, 2014

       

Management Fees

$               717,775

 

$               747,026

G&A Expenses (1)

$               574,336

 

$               528,161

Operating Expenses Reimbursable to Manager

$            1,051,567

 

$               864,270

Other Operating Expenses

$               619,243

 

$            1,560,413

Compensation Expense

$                 60,647

 

$                 67,745

Total Expenses

$            3,023,568

 

$            3,767,615

       

Period-End Capital

$        208,612,278

 

$       212,798,130

       

Management Fees

$               717,775

 

$              747,026

G&A, Other Operating Expenses and Reimbursable

$            1,697,126

 

$           1,350,891

Compensation Expenses

$                 60,647

 

$                67,745

Expenses related to Prime Jumbo Loans

$               548,020

 

$           1,601,953

       

Management Fees as % of Capital

1.38%

 

1.40%

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

3.37%

 

2.67%

Expenses related to Prime Jumbo Loans as % of Capital

1.05%

 

3.01%

 

(1) Excludes $1,109,540 and $1,011,625 in expense attributable to the consolidated trusts for the quarters ended March 31, 2015 and December 31, 2014.

The increase in G&A, Other Operating, Reimbursable and Compensation Expenses as a percentage of Capital over the past quarter is a function of an increase in headcount and infrastructure expenses, certain of which are considered to be front-loaded for the year.

The decrease in expenses related to the Prime Jumbo loan business is due to the lower average balance of loans in the first quarter of 2015 relative to the fourth quarter of 2014.

Operating Performance

The following table summarizes the Company's GAAP and non-GAAP earnings measurements for the quarter ended March 31, 2015.               

 

Three months Ended March 31, 2015 

Year-Ended December 31, 2014

             

Earnings

Earnings

Per diluted
weighted
share

Annualized
return on
average
equity

Earnings

Per diluted
weighted
share

Annualized
return on
average
equity

Core Earnings *

$      4,509,717

$                0.31

9.64%

$   16,044,059

$            1.30

9.8%

GAAP Net Income (Loss)

$    (6,010,836)

$              (0.41)

-12.85%

$        426,490

$            0.03

0.3%

Comprehensive Income (Loss)

$      5,871,123

$                0.40

12.55%

$   18,729,794

$            1.52

11.4%

             
             
 

Weighted Ave Shares Outstanding   

14,718,750

     
 

Weighted Average Equity

$ 189,764,581

     

Stockholders' Equity and Book Value Per Share

As of March 31, 2015, our stockholders' equity was $208.6 million and our book value per common share was $11.65 on a basic and fully diluted basis.

Dividends

The Company declared a dividend of $0.125 per share of common stock for the months of April, May and June 2015. Based on the closing price of $10.65 as at March 31, 2015, this equates to an annualized dividend yield of 14.1%.

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 March 31, 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

 

March 31, 2015

Reconciliation of GAAP to non-GAAP Information

   

Net Income (loss) attributable to common shareholders

$

(6,010,840)

Adjustments for non-core earnings

   

Realized (Gain) Loss on sale of investments, net

$

154,313

Realized (Gain) Loss on derivative contracts, net

$

2,830,486

Unrealized (Gain) Loss on derivative contracts, net

$

1,751,038

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

$

(272,232)

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

$

(551,383)

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

$

(2,037,111)

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

$

3,356,407

Subtotal

$

5,231,518

     

Other-than-temporary impairments:

   

Increase in credit reserves

$

1,977,489

Additional other-than-temporary credit impairment losses

$

2,890,939

Net other-than-temporary impairments

$

4,868,428

Other Adjustments

   

Recognized compensation expense related to restricted   common stock

$

25,627

Net swap interest expense

$

(796,406)

Adjustment for one-time charges

$

265,250

Adjustment for consolidated securities

$

1,191,390

     

Core Earnings

$

4,774,967

     

Weighted average shares outstanding – Basic and Diluted

 

14,718,750

     

Core Earnings per weighted share outstanding – Basic and Diluted

$

0.32

Additional Information

As of March 31, 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 March 31, 2015 is set forth below:

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

$           1,677,170,247

Multi-Family Securitized Debt Obligations (non-recourse)

$         (1,595,199,584)

Net Carrying Value

$                81,970,663

Multi-Family MBS (1)

$                35,294,618

Multi-Family MBS PO

$                83,870,432

Cash and Other

$                     706,813

Repurchase Agreements

$            (131,768,000)

Net Capital in Multi-Family

$                70,074,526

 

(1) Excludes $23,785,333 in Multi-Family MBS that is consolidated

As of March 31, 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 March 31, 2015 is set forth below:

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

$          555,592,713

Residential Securitized Debt Obligations (non-recourse)

$        (435,640,220)

Net Carrying Value

$          119,952,493

Non-Agency RMBS

$          171,914,914

Cash and Other

$              4,877,669

Repurchase Agreements

$        (223,674,000)

Net Capital in Non-Agency

$            73,071,076

   

 

(1) Excludes $2,432,600 in Mortgage Servicing Rights          

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT"), and is 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

   

March 31, 2015

 

March 31, 2014

   

 (unaudited) 

 

 (unaudited) 

Revenues:

       
 

Interest income:

       
   

Available-for-sale securities

$

6,805,958

$

3,902,963

   

Mortgage loans held-for-sale

 

705,461

 

   

Multi-family loans held in securitization trusts

 

17,635,476

 

   

Residential loans held in securitization trusts

 

5,891,779

 

   

Cash and cash equivalents

 

4,341

 

5,660

 

Interest expense:

 

   
   

Repurchase agreements – available-for-sale securities

 

(1,712,768)

 

(561,159)

   

Repurchase agreements – mortgage loans held-for-sale

 

(436,593)

 

   

Multi-family securitized debt obligations

 

(16,135,459)

 

   

Residential securitized debt obligations

 

(3,655,469)

 

                 
       

Net interest income

 

9,102,726

 

3,347,464

                 

Other-than-temporary impairments

       
 

Increase in credit reserves

 

(1,977,489)

 

 

Additional other-than-temporary credit impairment losses

 

(2,890,939)

 

                 
       

Total impairment losses recognized in earnings

 

(4,868,428)

 

                 

Other income:

       
 

Realized gain (loss) on sale of investments, net

 

(154,313)

 

(4,208,016)

 

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

 

 

5,892,193

 

Realized gain (loss) on derivative contracts, net

 

(2,830,486)

 

(842,767)

 

Unrealized gain (loss) on derivative contracts, net

 

(1,751,038)

 

(5,132,327)

 

Realized gain on mortgage loans held-for-sale

 

272,232

 

 

Unrealized gain on mortgage loans held-for-sale

 

551,383

 

 

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

 

2,037,112

 

 

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

 

(3,356,407)

 

       

Total other income (loss)

 

(5,231,517)

 

(4,290,917)

         

Expenses:

       
 

Management fee

 

717,775

 

467,536

 

General and administrative expenses

 

1,683,876

 

252,089

 

Operating expenses reimbursable to Manager

 

1,051,567

 

668,653

 

Other operating expenses

 

619,243

 

129,465

 

Compensation expense

 

60,647

 

80,078

                 
       

Total expenses

 

4,133,108

 

1,597,821

                 
       

Net income (loss)

$

(5,130,327)

$

(2,541,274)

                 
       

Dividends to preferred stockholders

 

(880,509)

 

(480,573)

                 
       

Net income (loss) attributable to common stockholders

$

(6,010,836)

$

(3,021,847)

                 
 

Earnings (loss) per share:

       
   

Net income attributable to common stockholders (basic and diluted)

$

(6,010,836)

$

(3,021,847)

     

Weighted average number of shares of common stock outstanding

 

14,718,750

 

8,872,617

     

Basic and diluted income (loss) per share

$

(0.41)

$

(0.34)

   

Dividends declared per share of common stock

$

0.38

$

0.36

                 

 

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

         
         
         

March 31,
2015

 

December 31,
2014

   

 (unaudited) 

   

ASSETS

       

 

Available-for-sale securities, at fair value (includes pledged securities of $600,419,826 and $366,103,204 for March 31, 2015 and December 31, 2014, respectively)

$

601,126,052

$

368,315,738

Mortgage loans held-for-sale, at fair value

 

111,656,191

 

54,678,382

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

 

1,671,260,380

 

1,750,294,430

Residential loans held in securitization trusts, at fair value

 

556,180,947

 

631,446,984

Linked transactions, net, at fair value

 

 

60,818,111

Cash and cash equivalents

 

26,290,939

 

32,274,285

Restricted cash

14,324,235

 

11,400,645

Deferred offering costs

 

1,014,112

 

945,661

Deferred securitization costs

 

145,710

 

Accrued interest receivable

 

10,142,515

 

10,962,663

Investment related receivable

 

223,958

 

979,509

Derivative assets, at fair value

 

 

21,550

Other assets

91,365

 

71,599

         
   

Total assets

$

2,992,456,404

$

2,922,209,557

         

LIABILITIES AND STOCKHOLDERS' EQUITY

       
         

LIABILITIES:

       

Repurchase agreements:

       
 

Available-for-sale securities

$

647,487,000

$

544,614,000

 

Mortgage loans held-for-sale

 

97,360,853

 

50,263,852

FHLB Advances

 

1,000,000

 

Multi-family securitized debt obligations

 

1,589,502,264

 

1,670,573,456

Residential securitized debt obligations

 

434,401,168

 

432,035,976

Derivative liabilities, at fair value

 

4,102,546

 

2,289,058

Accrued interest payable

 

7,710,568

 

8,238,924

Dividends payable

 

39,132

 

39,132

Fees and expenses payable to Manager

 

1,226,000

 

1,062,000

Other accounts payable and accrued expenses

 

1,014,595

 

295,029

         
   

Total liabilities

 

2,783,844,126

 

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 March 31,

       

     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 March 31, 2015 and December 31, 2014, respectively

 

146,953

 

146,953

Additional paid-in capital

 

189,252,974

 

189,332,874

Accumulated other comprehensive income (loss)

 

19,090,309

 

7,208,350

Cumulative distributions to stockholders

 

(38,806,581)

 

(32,406,541)

Accumulated earnings

 

1,771,651

 

11,359,522

         
   

Total stockholders' equity

 

208,612,278

 

212,798,130

             
   

Total liabilities and stockholders' equity

$

2,992,456,404

$

2,922,209,557

             
     

 

(1)  Our condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIE's) as the Company is the primary beneficiary of these VIEs.  As of March 31, 2015 and December 31, 2014, assets of consolidated VIEs totaled $2,235,195,560 and $2,389,784,101, respectively, and the liabilities of consolidated VIEs totaled $2,030,839,804 and $2,180,936,221, respectively

   

 

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

 

SOURCE Five Oaks Investment Corp.

Share